BANCROFT    LIBRARY 


7 


0 


THE 

J    — • 


MORGAN-HONDURAS 


LOAN 


SECOND  PART 


THE  EXTERNAL  DEBT  OF  HONDURAS 


ANS: 

ji  Co.,  Ltd.,  Printers 
1912 


TH1 


MORGAN-HONDURAS 


LOAN 


SECOND   PART 


THE  EXTERNAL  DEBT  OF  HONDURAS 


NEW  ORLEANS: 

The  L.  Graham  Co.,  Ltd.,  Printew 

1912 


goaczoft  U 


0> 

>  INTRODUCTION. 


•m  After   the   publication  of   the  history   of  the   Morgan   Loan 

2  scheme  in  November  last,  I  now  deem  it  necessary,  in  this  second 

iij  Volume,  to  give  to  the  public  the  history  of  the  External  Debt  of 

•^ 

<f  Honduras,  basis  of  the  Morgan  proposition. 

JUAN  E.  PAEEDES. 

4* 

5*  New  Orleans,  La.,  January,  1912. 


The  Honduras  Problem. 


Before  presenting  our  case  we  want  to  define  our  position 
in 'regard  to  general  policies,  so  that  misunderstandings  may  be 
avoided. 

In  the  first  place,  we  want  to  declare  that  stability  of  Govern- 
ment,, order,  peace,  and  credit,  are  indispensable  for  the  develop- 
ment of  our  country,  for  the  welfare  of  our  people  and  for  the 
maintenance  of  friendly  relations  and  commercial  intercourse  with 
foreign  countries. 

Secondly,  we  must  frankly  admit  that  the  trouble  with  us  in 
the  past  has  been  that  we  have  very  seldom  abided  by  our  written 
constitution,  in  so  far  as  liberty  of  the  press,  freedom  of  speech, 
fair  elections  and  presidential  terms  are  concerned;  and  that 
party  strife  very  often  wipes  out  all  constitutional  barriers,  estab- 
lishing in  their  stead  dictatorships  and  military  rule. 

And  furthermore,  it  is  an  undeniable  fact  that  the  two  old 
political  parties  of  Central  America,  called  the  Liberals  (radicals), 
and  the  Conservatives  (clericals),  have  often  waged  wars  against 
each  other,  which  have  given  us  a  bad  name  before  the  civilized 
world,  which  hears  so  much  of  the  Revolutions  of  Central  America. 
But,  in  the  true  sense  of  the  word,  we  have  no  international 
wars :  our  political  contests  are  kept  on  party  lines,  regardless  of 
state  boundaries,  as  we  do  not  consider  the  Central  American 
States  as  foreign  countries,  but  as  temporarily  separated  sections 
of  one  nation.  Indemnization  of  war,  seizure  or  cession  of  ter- 
ritory are  never  contemplated  in  our  peace  treaties,  or  in  the 
adjustment  of  our  differences.  Our  partisan  struggles  are  family 
quarrels,  confined  only  to  a  change  of  administration  and  policies, 
as  we  all  regard  Central  America  as  our  common  country,  as  is 
Spain  to  an  Asturean,  Italy  to  a  Sicilian,  France  to  a  Gascon. 

The  Independence  and  Union  of  the  Central  American  States 
are  our  common  inheritance,  and  we  cherish  both  of  them  as  a 
sacred  legacy  from  our  ancestors. 

And  we  believe,  and  sincerely  believe  it,  that  the  reunion  of 
the  Central  American  States  is  the  only  logical  solution  of  our 
political  and  economical  problems;  that  the  consolidation  of  the 
five  States  under  one  administration  is  the  only  safe  way  to  assure 
a  stable,  orderly  and  just  government,  permanent  peace,  sound 


finances,     popular     education     and     industrial     and     commercial 
development. 

\\'r  trust  in  our  I'nioii:  our  destiny  is  a  United  Central  America 
under  the  \Vliitt'  mnl  Hlur-  ilag.  And  we  expect  that,  sooner  or 
later,  we  will  he  one  Xation,  as  the  United  Germany  and  the 
United  Italy  of  these  day-. 

In  the  meantime,  we  have  to  deal  severally  with  the  individual 
States'  problems. 

In  regard  to  Honduras,  we  may  say  that  we  have  always  wel- 
comed anything  that  we  deem  contributory  to  the  development  of 
the  country  and  to  the  welfare  of  its  people,  but  never  have  enter- 
tained any  idea,  suggestion  or  proposition  which  might  endanger 
our  national  sovereignty  and  independence,  or  prevent  the  reunion 
of  the  Central  American  States,  to  which  we  are  solemnly  pledged 
by  the  first  article  of  our  constitution. 

Although  wo  duly  appreciate  the  importance  and  influence  of 
the  investment  of  foreign  capital  in  the  development  of  the  natural 
resources  of  our  country,  we  understand  that  the  mere  exploitation 
of  ihrni  without  any  other  consideration  does  not  contribute  to  the 
material  growth  and  strength  'of  the  nation.  If  new  people  do 
not  come  to  stay  and  settle  in  our  land,  to  live  with  us  and  to 
become  naturalized  and  raise  their  families,  it  would  mean  a  mere 
renunciation  of  our  resources  for  the  benefit  of  strangers.  By 
turn  in;:  over  the  natural  resources  of  our  country  to  foreign  hands, 
leaving  not  hi  MM-  f,,r  future  generations  of  our  own,  we  would 
stultify  ourselves  to  the  utmost. 

\\V  mu-t  follow  the  example  set  by  the  United  States  with 
their  new  <  -on-crvat ion  policy,  to  preserve  from  waste  the  wealth 

\>\  nature   for  all  generations. 

W«-  "iv  not  disposed  to  turn  over  our  natural  resource-  and 
the  management  of  mir  own  a  flairs  to  foreign  hands,  and  thus 
put  Otirselvefi  in  bondage  and  in  servitude  under  the  so-called  bene- 
volent nr-  the  American-,  the  I'.ritish.  or  any  other  foreign 
nation,  under  the  pretext  of  rehabilitation  of  our  credit  and  the 
illusion  of  prOgre«8,  peace  and  pro-parity.  We  have  no  faith  in 

the  benevolence  of  CM:  rernmente,  u  we  do  not   believe  in 

•meihing   I',,,-  nothing.     \Ve  BBiped   this  kind 

aevolence,   ami    we  doubt    this   BOrl    of   philanthropic    proposi- 

•///'/.   Morocco  'mi/  Persia  an    object   lessons 

///»/V///.s      In  ill'      I  II       III  I  III/ . 


Foreigners  are  welcome  to  our  country  with  their  capital, 
industry,  knowledge  and  experience,  provided  they  come  to  invest 
their  capital  and  exert  their  activities  under  our  laws.  They  must 
come  to  work  and  trade  on  competitive  lines  of  production  and 
exchange,  as  we  do  not  believe  in  trusts  or  monopolies,  but  in  free 
competition  and  just  distribution  of  wealth. 

We  are  committed  to  the  "Open  Door"  policy  since  1853,  whem 
we  granted  the  first  concession  for  the  building  of  the  Inter- 
Oceanic  Eailway  across  our  territory.  We  adhered  to  the  same- 
policies  by  public  treaties  with  Great  Britain,  France,  and  the 
United  States,  in  1856  and  1864.  We  maintain  that  policy  and  in- 
tend to  maintain  it  regardless  of  intervention,  co-ercion  or  pres- 
sure from  the  outside. 

The  mere  suggestion  of  guardianship,  tutelage  or  protec- 
torate over  a  free  people  is  offensive  enough  to  create-  resentment; 
and  we  resent  it  indeed. 

We  are  surprised  by  the  change  of  attitude  of  the  State  De- 
partment of  the  United  States  in  its  Central  American  policj'. 

We  recollect  the  Clayton-Bulwer  Treaty  of  1850,  and  all  what 
the  United  States  did  to  prevent  Great  Britain  from  holding 
territory  in  our  country.  We  appreciated  the  good  offices  of  "U»- 
cle  Sam"  at  that  time. 

But  when  we  see  that  under  the  pretext  of  helpfulness  and 
co-operation,  the  United  States  now  is  trying  to  take  practical  pos- 
session of  our  country  to  be  exlpoited  by  New  York  financiers  and 
promoters,  taking  from  us  not  only  our  natural  resources  and  our 
own  money,  but  our  autonomy,  too,  converting  us  into  vassals  and 
serfs  of  this  new  feudal  system  of  Wall  Street,  then  our  love  of 
country  and  liberty  demands  of  us  to  stand  firm  and  united  against 
foreign  greed. 

In  view  of  our  attitude,  the  United  States  will  have  to  come  to 
the  open  as  conquerors,  if  they  want  to  subjugate  the  Central' 
American  States.  Then  the  United  States  would  prove  that  the 
Pan-American  Union  has  been  a  farce ;  they  would  then  show  their 
ambitions,  find  prove  the  true  meaning  of  the  Monroe  Doctrine; 
and  Europe  would  know  that  the  object  of  the  United  States,  in1 
excluding  Europe  from  this  continent,  is  only  to  preserve  Latin- 
America  for  the  future  prey  of  their  greed. 

We  are  not  refractory  to  civilization,  or  blind  to  the  signs- 


10 

of  the  times.  We  know  that  we  cannot  stop  progress,  and  we  under- 
stand the  new  conditions  of  the  business  world.  We  know  that 
lack  of  political  stability  and  of  transportation  facilities  are  the 
main  objections  for  the  settlement  of  immigrants  and  investment 
of  capital  in  Hondunis.  We  know  that  nobody  dares  to  immigrate 
to  a  country  of  daily  political  disturbances  and  without  good 
roads.  We  are  well  aware  of  these  facts,  and,  for  the  very  reason, 
decided  long  ago  to  open  the  country  to  foreign  capital  and  trade, 
through  the  construction  of  an  Inter- Oceanic  Railway  across  our 
territory. 

We  believe  that  the  proper  way  to  develope  the  natural  re- 
sources of  our  country  and  bring  capital  and  population  to  our 
poil,  is  by  means  of  transportation,  run  by  steam  or  electricity. 
In  tli is  point  our  people  are  all  in  accord  and  feel  enthusiastic 
about  it. 

When  the  Americans,  British,  and  French  failed  to  comply 
with  their  contracts  to  build  the  Inter-Oceanic  Railway,  from  1853 
to  1866,  we  embarked  ourselves  in  the  same  scheme  authorizing 
the  i-sue  of  the  famous  Railway  Bonds  which  serve  to-day  to  the 
speculators  and  promoters  of  the  Morgan  Loan  scheme  to'  get 
control  of  our  Inter-Oceanic  route  and  Customs  revenues  of  the 
country  with  the  support  and  assistance  of  the  United  States 
Government. 

After  the  Railway  fiasco  of  1872,  Honduras  has  made  many 
attempts  to  settle  the  Bonds  question  and  to  proceed  with  the 
T?ailwav  construction.  The  subject  has  proved  to  be  a  knotty 
problem,  and  remains  as  the  stumbling  block  in  our  path  to  progress 
ami  prosperity.  From  its  limi!  solution  depends  to  certain  extent 
the  industrial  and  commercial  development  of  the  country,  and 
the  welfare  of  its  inhabitants. 

Our    view    of    the    importance    and    influence   of    the   Inter- 
l,'ail\\ay  on  the   future  reh;ihilitation  of  Honduras  is  that 
it  will  revolutioni/e  our  social,  political  and  economical  conditions: 
that  it   will    open    ihe   country    to    foreign    capital    and    trade:   that 
the   investment    of  capital    and   employment   of  labor  in   biir  enter- 
will   contribute  to  hrinir   peace  and  stability,  which   we  \n\\£ 
Mat    the    population    ami    wealth   of    the   country   will    increase 
c'noniioii.-ly   hv    iniriiiirranon.    production    and    tratlic:    that    Bchooh, 

libra:  iraterworks,  electric  liirht  plant-,  factories,  street 


11 

cars  and  all  the  comforts  of  modern  civilization  will  be  the  nat- 
ural effect  of  new  conditions. 

We  understand  that  transportation  is  the  basis  of  big  produc- 
tion, big  markets,  good  profits,  high  wages,  comfort  and  educa- 
tion. We  do  not  see  any  chance  or  use  for  big  production  without 
a  corresponding  market;  and  for  reaching  that  market,  means  of 
transportation  are  necessary. 

For  these  reasons  we  consider  transportation  as  the  corner 
stone  of  our  material  progress. 

But  our  question  remains  unanswered. 

How  to  get  transportation  ? 

Many  times  we  have  attempted  to  get  it,  but  every  combina- 
tion has  met  with  failure,  and  the  Inter-Oceanic  Railway  Bonds 
continue  to  be  a  heavy  cloud  over  the  country.  And  although  the 
British  Parliament,  1875,  proved  the  innocence  of  Honduras  in 
the  Railway  Loans  frauds  of  1867,  1869,  and  1870,  nevertheless  the 
matter  stands  unsettled,  and  the  Railway  has  not  been  built,  the 
old  Bonds  have  not  been  cancelled  or  refunded,  and  the  country 
remains  undeveloped. 

Why? 

What  is  the  difficulty? 

Where  is  the  obstacle? 

!Now  we  come  to  the  point  when  we  have  to  use  plain  talk. 

A  conspiracy  of  New  York  promoters  have  for  years  tried 
to  confiscate  the  Inter- Oceanic  Railway  and  to  take  hold  of  the 
Custom  Houses  of  Honduras;  but  the  British  Bondholders  have 
always  opposed  their  schemes,  alleging  vested  rights  to  the  Rail- 
way which  was  built  with  British  money. 

The  American  Government  have  repeatedly  supported  the 
American  claims,  and  the  British  Government  have  firmly  sup- 
ported the  Bondholders  rights.  Protests  from  both  sides  have 
prevented  any  final  agreement  or  understanding. 

As  a  solution  of  the  difficulty  Honduras  entered  into  an  ar- 
rangement with  the  Bondholders  through  H.  B.  M.  Minister, 
Lionel  Garden;  arrangement  which  was  officially  announced  to 
have  been  accepted,  but  which  eventually  was  not  carried  out  on 
account  of  interference  by  the  United  States  Government  which 
brought  forth  the  Morgan  Loan  scheme. 

Honduras  has  rejected  the  proposition  for  the  following  rea- 
sons: 


12 

1.  The  proceeds  of  the  Loan  will  not  benefit  Honduras  at 
nil  as  one  h;il I'  will  go  to  the  speculators  of  the  old  Railway  Bonds, 
and  the  other  half  will  be  left  in  New  York  to  be  divided  between 
the  promoters  of  the  Loan  scheme  and  the  manipulators  of  the 
Hail  way  and  Wharf  contracts. 

B.  According  to  the  Morgan  plan,  only  a  small  portion  of 
the  Loan  is  to  be  applied  to  the  Railway:  that  means  that  the 
completion  of  the  Inter-Oceanic  Line  cannot  be  accomplished 
within  40  years, 

0.  The   hypothecation   of   all   the    Customs   Revenues,   Rail- 
way,  and   Wharf,  will  prevent  Honduras  from  contracting  with, 
or  .granting  to, "third  parties,  the  construction  of  the  Inter-Oceanic 
Railway,  or  negotiate  a  loan  for  that  purpose. 

1.  No  reciprocity  treaties  or  concessions  for  new  enterprises 
are  possible,  as  changes  on  the  tariff  or  dispensation  of  duties  can- 
not be  made  without  the  consent  of  the  Bankers. 

5.  Honduras  cannot  re-enter    into    the    Central    American- 
1'n i«»n.  having  her  revenues  tied  up  by  Treaty  and  Contracts. 

6.  The   drain   of  money  from  the   country    by    monthly    re- 
mittances to  New  York  will  paralyse  business  and  impoverish  the 
people. 

7.  '  The  Custom  Houses,  Railway,  and  Wharf,  being  under  the 
direct  control  of  the  Bankers,  and  administered  by  their  Agents 
under  the  protection  of  the  United  States  Government  and  beyond' 
the   control    of    Honduras,   make   such   Bankers  and    Agents   unac- 
countable to  Honduras  for  their  acts;  their  responsibility  cannot 
be  fixed  by  our  laws:  their  abuses  would  be  ruinous  to  Honduras 

and 

Phe  linkers  controlling  the  Custom  Houses,  the  Railway 

and    Wharf  and  the  revenues  thereof  will   practically  establish   a 

which   will    not   only   mean   the   restriction  of  trade,  but    will 

make  ;ib~olutelv  impossible  any  competition  in  the  country   for  all 

concent   not   connected   with  the  Morgan  Syndicate. 

ihe    abo\.  Qfl    Honduras    has    rejected    the    proposed 

in    L«  an.    ;ind    declared    her    ^ood    disposition    to    entertain    a 
new    i 

\Vluii  kind  of  -ettlement  would  be  acceptable  and  practicable, 
and  aatiifaetoi 

\\Y   >iILrLr(^i    three   plan-  : 


13 

1.  A  plan  of  gradual  amortization  of  the  old  Bonds.,  through 
a  Sinking  Fund  formed  with  a  percentage  of  the  Custom  Revenues, 
as  was  proposed  by  the  Bondholders  it  1903. 

2.  A  plan  of  conversion  of  the  old  Bonds  by  issuing  new 
Bonds,  bearing  interest,  with  the  guarantee  of  a  percentage  of  the 
Custom  Revenues,  as  was  proposed  in  1897. 

3.  The  plan  proposed  by  Minister  Garden  in  1909. 
Any  of  them  is  practicable.- 

The  fundamental  objection  being  that  the  British  will  not 
be  allowed  to  control  the  Inter-Oceanic  Railway  or  the  Custom 
Houses  of  Honduras,  on  account  of  the  Monroe  Doctrine,  we  are 
disposed  to  settle  the  Bonds  question  by  paying  fixed  annual  in- 
stallments to  the  British,  and  by  letting  the  Americans  construct  the 
Railway;  but  by  no  means  will  we  give  up  the  administration  of 
the  Custom  Houses  to  either  the  British  or  the  Americans. 


Brief  History  of  the  Foreign  Debt. 


17 


BEIEF  HISTORY  OF  THE  FOREIGN  DEBT. 

As  the  Foreign  Debt  and  the  Inter-oceanic  Railway  are  inti- 
mately connected  with  the  so-called  Morgan  Honduras  Loan,  I 
now  give  a  brief  account  of  the  origin  of  the  Foreign  Debt  and  of 
the  many  attempts  and  efforts  which  Honduras  has  made  to  settle 
the  debt  and  to  obtain  an  inter-oceanic  highway. 

The  Honduras  Foreign  Debt  originated  from  three  loans,  is- 
sued in  London  and  Paris  in  1867,  1869  and  1870,  -respectively, 
for  the  construction  of  an  Inter- Oceanic  Railway  from  Puerto 
Cortes,  on  the  Atlantic,  to  the  Bay  of  Fonseca,  on  the  Pacific. 

In  connection  with  the  foregoing  loans  was  an  issue  of  Bonds 
in  1867  for  £90,000  for  the  ostensible  conversion  of  the  so-called 
Federal  Debt,  which  in  reality  had  been  fully  paid  under  formal 
contracts  and  Treaty  conventions. 

Actually,  Honduras  was  solvent  with  the  world  when  these 
Railway  transactions  began- — but  the  Government  was  ignorant  of 
the  details  of  the  Federal  Debt  settlement.  When  discovered,  a 
Special  Commissioner  was  sent  to  London  to  demand  cancellation 
and  retirement  of  the  Bonds. 

The  first  Railway  Loan  was  issued  for  a  nominal  amount  of 
£1,000,000;  the  second  for  £2,490,108;  and  the  third  for 
£2,500,000.  Total  £5,990,108,  reduced  by  amortization  to 
£5,398,570. 

The  Interest  and  Sinking  Fund  of  the  three  Loans  together 
originally  required  an  annuity  of  £695,700,  covering  a  period  of 
15  years. 

When  these  Loans  were  contracted  for,  it  was  calculated  by 
the  Bankers  and  Promoters  that  the  earnings  of  the  Railway 
would  cover  their  service. 

In  the  meantime,  and  during  the  construction  period,  the 
first  payments  would  be  made  from  the  products  of  mines,  Maho- 
gany royalities  and  from  the  proceeds  of  the  Loans.  And,  it  was 
so  provided  for,  because  Honduras  had  no  financial  resources  to 
pledge  for  the  loan  service. 

In  1872  the  whole  structure  collapsed :  it  was  founded  on  quick- 
sand. Frauds  were  committed  in  London  and  Paris :  the  Govern- 
ment was  misled :  the  Railway  contractors  defaulted :  only  56  miles 
of  road  were  imperfectly  constructed,  and  the  works  abandoned. 


18 

In  consequence  the  subscribers  to  the  Loans  found  them- 
selves the  holders  of  such  worthless  paper,  secured  only  by  future 
guarantees,  that  we  might  reasonably  call  them  imaginary  and 
fictitious. 

In  1873  the  Bondholders  decided  and  agreed  to  organize  a 
Joint  Stock  Company  and  change  their  Bonds  into  shares  of  a  new 
Inter-Oceanic  Railway  Company,  and  then  issue  new  Bonds  in 
order  to  raise  money  to  proceed  with  the  work  of  construction  to 
complete  the  line.  They  made  an  agreement  with  the  Govern- 
ment of  Honduras  on  the  above  basis,  which,  was  duly  ratified  by 
Congress. 

In  other  words,  the  Bondholders  agreed  to  accept  the  Railway 
for  the  Debt,  but  the  Company  was  apparently  unable  to  raise  the 
necessary  funds  to  carry  on  the  construction  of  the  line,  incurred 
debts,  and  returned  the  Railway  to  the  Government,  which  paid  the 
debts.  ' 

In  1875,  the  British,  Parliament  ordered  an  investigation  of 
certain  Foreign  Loans  which  had  gone  into  default.  The  Hondu- 
ras Loans  were  a  subject  of  severe  criticisms  on  the  part  of  the 
Parliamentary  Committee,  on  account  of  enormous  frauds,  mis- 
application of  funds  and  lack  of  adequate  security. 

From  the  select  .Committee's  report  of  1875,  it  appears  thai 
only  53  miles  of  road  were  constructed,  for  which  the  contractor* 
apparently  received  £689,745.  The  balance  of  the  proceeds  of  the 
LI  KIMS  were  diverted  to  other  purposes  and  wasted  on  commissions, 
discounts  expenses,  salaries,  interest,  amortization,  etc.,  etc.,  in 
London  and  Paris. 

Honduras  and  the  bona-fide  purchasers  of  the  Bonds  were 
the  victims.  Tin-  British  (iovernment  and  the  Committee  of  Bond- 
holders exonerated  Honduras  from  the  moral  responsibility  of  the 
frauds. 

•ftbtlttt,    Honduras  has  always  been   desirous  of  coming 
•landing   with    the    Bondholders   and    luis    always   been 
to  make  ;in  arrai)Lreni<Tit   on  a   fair  and  equitable  basis   for 
the  settlement  of  the  Kail  way  Debt. 

In    1  Wto  granted    to  .1.    L.    llanre  and   John 

J.  Waterhury.  of   New    York,   to  build   the   I  nler-Oreanic   Railway. 
mg  wan  accomplished  hv  this  contract. 
In    I**:,  the  <;«\rniim'iit    L'ranl.-d   a   OODeeftffofl   to  n    Mr.    Bin- 


19 

ney,  of  London,  who  organized  a  new  Company  to  construct  the 
Inter- Oceanic  Eailway  and  settle  the  Foreign  Debt. 

Changes  to  the  contract  were  proposed  which  were  accepted 
in  1890. 

The  Company  was  unable  to  raise  the  money  required  for 
the  R.  Ed.  Construction,  and  the  concession  expired  in  1892. 

From  1892  to  1896  the  Railway  was  operated  by  Valentine 
and  Associates  under  leases. 

In  1896,  a  contract  was  signed  with  the  Honduras  Railroad 
Company,  of  New  York,  represented  by  Mr.  Valentine,  to  the 
same  end  and  for  the  completion  of  the  Inter-Oceanic  Railway  to 
the  Pacific.  This  Company  subsequently  transferred  their  rights 
to  the  Honduras  Syndicate. 

In  1897,  a  contract  was  signed  with  the  Honduras  Syndicate 
for  the  reconstruction  of  the  first  section  of  the  Railway,  for  the 
completion  of  the  Inter-Oceanic  line,  the  settlement  of  the  Foreign 
Debt  and  the  establishment'  of  a  Bank,  the  Syndicate  being  repre- 
sented by  Mr.  Valentine,  and  by  Henry  L.  Sprague,  law  partner 
of  Mr.  Jennings. 

This    Syndicate   was   composed   of   the   following  prominent 
New  York  Capitalists,  Lawyers,  Financiers  and  Promoters : 
Chauncey  M.  Depew,  W.  Seward  Webb, 

John  Jacob  Astor,  Benjamin  F.  Tracy, 

J.  C.  McCullough,  Frederick  B.  Jennings, 

Geo.  S.  Scott,  Nathaniel  A.  Prentiss, 

Charles  McVeigh,  Melville  E.  Ingalls,  Jr. 

The  Syndicate  found  out  later  on  that  this  plan  was  im- 
practicable, and  disagreements  arose.  They  failed  to  arrange  the 
Debt  or  build  the  Railway. 

In  1900,  the  same  Syndicate  contracted  again  with  the 
Government  for  the  construction  of  the  Railway,  from  La  Pimienta 
to  the  Pacific,  cancelling  the  obligations  for  the  settlement  of  the 
Foreign  Debt  and  the  Bank  scheme,  and  absolutely  terminating 
the,  contract  of  189 7.  The  Syndicate  and  the  Government  obli- 
gated themselves  not  to  make  or  continue  any  reclamation,  or  exact 
indemnization  of  any  character,  by  reason  of  the  Contract  that  day 
terminated,  in  respect  to  any  reclamation  or  indemnization  relating 
to  failure  of  compliance  or  acts  prior  to  that  date. 


20 

Tliis  contract  was  approved  by  Decree  No.  2,  of  the  National 
Congress,  May  26th,  1900. 

In  1902,  the  Syndicate  asked  for,  and  obtained  from  the 
Executive,  an  extension  of  time  of  one  year  to  carry  out  their 
obligations,  subject  to  the  approval  of  Congress. 

In  order  to  obtain  this  extension  of  time  the  Syndicate, 
through  its  legal  representative  agreed,  that  in  case  the  National 
Congress  at  its  next  session  should  not  approve  the  extension  of 
time,  or  in  case  the  time  should  expire  and  the  Syndicate  did  not 
comply  meanwhile  with  the  obligations  of  their  contract,  they 
would  peaceably  surrender  the  Railway  without  reclamations  for 
indemnization,  and  renouncing  arbitration. 

In  1903,  this  extension  of  time  expired,  and  the  Syndicate 
delivered  the  Railway  to  the  Government  in  conformity  with  their 
agreement  of  1902. 

The  Syndicate  then  filed  a  claim  against  Honduras  for  $1,- 
056,393. 

In  the  same  year  the  Council  of  Foreign  Bondholders  made 
a  proposition  for  the  settlement  of  the  Debt  and  completion  of 
the  Inter-Oceanic  Railway.  Honduras  was  asked  to  pay  $100,000 
per  year,  rising  by  four-yearly  increments  of  $20,000,  in  order  to 
cancel  all  the  old  bonds  in  27  years — retiring  £200,000  Bonds  per 
year— by  a  total  payment  of  $4,200,000. 

The  United  States  Government  objected  to  this  arrangement 
through  its  Legation  by  the  following  communication: 

(Telegram.) 

(iuatemala,  July,  3,  1903. 

Minir-h-r  nf   Foreign    KVlat ions.  Tegucigalpa: 

"M  Governmenl  disapprove-  of  the  terms  of  the  proposal  of 
the  Sijiiicr  Svndicat". 

"I    am    oppo^-d    that    an    American    Corporation    shall    be    Ihe 

medium  of  cclrl.iatinir  an  aiTaiiLrenirnt  between  Honduras  and  the 

landholders  with   respect    in  a  Debt  relative  to  which  is 

illegalities  and   injustice. 
•   the  honor  of  a   reply  by  idcLrraph  to  this  016881 

.     LESLIE  COMB! 

Mini-ii-r  of  tin-  I'niled  States. 


21 

In  1904.,  Honduras  signed  an  agreement,  through  Minister 
Ugarte  in  New  York,,  with  the  Squier  Syndicate  to  the  effect 
that  the  Syndicate  should  buy  the  first  section  of  the  Railway  for 
$500,000,  paying  proceeds  to  the  Bondholders  on  account  of  the 
Debt,  and  finish  the  Inter-Oceanic  Railway,  within  a  certain 
period.  Honduras  was  disposed  to  accept  this  proposal  of  the 
Bondholders,  and  to  pay  $100,000  per  year  from  the  Revenues 
collected  at  the  Custom  House  of  Puerto  Cortes,  for  the  amortiza- 
iion  of  the  balance  of  the  old  Bonds  at  8%  of  their  face  value 
without  interest.  In  this  manner  the  whole  Debt  could  be  cancelled 
by  paying  $2,159,428 — less  value  of  Bonds  amortized  with  the 
proceeds  of  the  Railway. 

This  plan  was,  however,  abandoned  on  account  of  objections 
raised  by  the  United  States  Government. 

In  1908,  the  same  Squier  Syndicate  advanced  a  new  proposi- 
tion to  the  Government  of  Honduras,  which  was  declared  unac- 
ceptable by  the  Bondholders. 

In  1909,  the  British  Minister  to  Central  America,  Mr.  Lionel 
Garden,  arrived  at  Tegucigalpa  for  the  purpose  of  making  an 
arrangement  for  the  settlement  of  the  Foreign  Debt.  On  the  10th 
of  March,  he  presented  to  the  Government  a  proposal  which  was 
treated  and  finally  agreed  to  on  the  following  basis : 

The  amount  of  the  debt  was  fixed  at  £452,000,  discarding 
all  back  interest  of  38  years,  but  charging  interest  at  8.86%  for 
the  following  40  years. 

Principal  and  Interest  cumulated  for  40  years  would  amount 
to  £1,600,000,  to  be  paid  by  annual  installments  of  £40,000  each. 

These  annuities  were  to  be  applied  to  the  amortization  of  old 
bonds  by  drawings  or  by  purchases. 

For  the  payment  of  said  annuities  of  £40,000,  the  Govern- 
ment compromised  itself  and  ceded  to  the  Bondholders  the 
Revenues  of  the  Railroad  and  Wharf  at  Puerto  Cortes,  and  15% 
additional  charge  on  the  Import  duties. 

In  order  to  put  said  Railway  in  a  state  of  repair,  to  build 
branches,  and  to  extend  the  same  to  the  south,  the  Government 
and  the  Bondholders  agreed  that  the  Republic  should  issue  new 
Bonds  to  the  amount  of  $500,000  (£100,000),  secured  by  the  net 
earnings  of  the  Railway;  thus  constituting  a  preferential  charge 
on  the  same. 


22 

The  Government  insisted  on  raising  to  $1,000,000  (£200,000)r 
i In-  amount  of  the  new  Loan,  and  the  Bondholders  gave  their 
assent,  with  the  approval  of  the  British  Government  through  the 
British  Legation. 

(Telegram  No.  14 v!.) 

Guatemala,  June  25,  1900. 
His  Excellency,  President  Davila,  Tegucigalpa: 

"T>y  instructions  received  from  my  Government  I  have  the 
honor  to  advise  your  Excellency  the  acceptance  on  the  part  of  the 
Foreign  Bondholders  of  London,  of  the  Basis  of  arrangement  of 
the  External  Debt  of  Honduras  proposed  by  your  Excellency  on 
the  llth  of  March,  of  the  current  year.  • 

"At  the  same  time  I  have  the  pleasure  of  expressing  the  satis- 
faction with  which  the  Government  of  H.  B.  M.  has  seen  the 
good  disposition  and  conciliatory  spirit  displayed  by  the  Govern- 
ment of  your  Excellency  in  the  negotiations  due  to  which  it  was 
made  possible  to  arrive  at  a  solution  so  satisfactory  and  honorable 
for  both  parties. 

i  signed)     BRITISH  MINISTER. 

It  was  also  agreed  that  should  the  Revenues  compromised  in 
the  agreement  not  cover  an  annuity  in  any  one  year,  the  deficit 

was  to  he  paid  only  from  the  surplus  of  coming  years. 

Also,  that  should  there  be  any  surplus,  or  balance,  in  favor 
of  the  (iovcnmicnt,  it  was  to  be  applied  to  the  extension  of  the 
liailroad  which  remained  the  property  of  the  Government. 

Tlii-  plan  would  have  work"d  out  as  follows: 

REVENUES, 

of    I.'.    I.M.  gross  «-ani ings,  yearly *   1  (i.SOO.on 

of   \Vharf   groa    earning,   yearly 43.200.00 

Of  additional   charges  on   'Import    Duties....    108,000.00 


10.00 

hKI'.T  8EBVICE, 
filtered  on  $I.IMII..IIIII)  \,.u   I'M, nds $  r.n.ooo.no 

>:nking  l-'inid  000,000   \.-w   Bonds....       10,000.00 

fl<>. MIX!    I1,,,-  amorii/ation   Old    I'.nmU.  .  ,000.00 


80,000.00 

M    ear  : 


23 

This  estimate  of  revenue  is  based  upon  actual  products.  But 
with  the  extension  of  Railway  to  new  banana  fields  the  earnings 
of  same  and  Wharf  would  increase  sufficiently  to  cover  the  deficit 
within  the  next  two  years. 

In  order  to  remedy  this  feature  of  the  agreement.,  and  avoid 
any  temporary  deficit,  the  Government  was  disposed,  in  recogni- 
tion of  the  large  advance  made  to  improve-  the  Railroad,  to  fix  a 
certain  amount  from  the  Revenues  collected  at  the  Custom  House 
of  Puerto  Cortes,  worth  $800,000  silver  a  year — equivalent  to 
$320,000  gold;  and  from  its  Customs  the  Government  would  dis- 
pose of  $150,000  a  year. 

In  this  way  the  annuity  could  be  made  out  as  follows : 

40%  gross  earnings  of  Railroad  yearly $  76,300.00 

90%  gross  earnings  of  Wharf  yearly 43,200.00 

Puerto  Cortez  Customs    150,000.00 


Total $270,000.00 

Surplus , 10,000.00 

Any  surplus  to  be  applied  to  the  Railroad  construction. 

It  was  agreed,  and  expressly  stipulated,  that  the  Government 
and  the  Bondholders  should  contract  with  a  third  party  for  the 
construction,  equipment,  maintenance  and  operation  of  said  Rail- 
road and  Wharf,  and  that  their  net  proceeds  be  applied  to  the 
purpose  aforesaid. 

But  nowhere  in  this  agreement  appears  anything  to  show  that 
the  construction  of  the  Inter-Oceanic  Railway  was  prevented. 

The  new  Loan  was  only  secured  by  the  net  earnings  of  the 
Railway. 

It  was  contemplated  that  at  the  time  of  drawing  up  of  the 
contract  for  the  reconstruction  and  operation  of  the  Railway,  alJ 
provisions  would  be  made  for  the  completion  of  the  line  to  the 
Pacific  Ocean,  leaving  open  the  door  for  new  propositions. 

On  account  of  the  Claims  of  the  Honduras  Syndicate  and  W. 
S.  Valentine,  the  United  States  Government  inter f erred  to  break 
up  this  arrangement.  The  Morgan  proposition  was  brought  for- 
ward by  the  United  States  Government  and  the  Government  of 
Honduras  was  urged  to  accept  it  under  heavy  pressure. 


24 

THE  MORGAN  PROPOSITION. 

In  July  1909,  Mr.  Morgan  got  an  option  from  the  Council 
of  Foreign  Bondholders  in  London,  to  acquire  the  Honduras  Bonds 
at  15%  of  their  face  value,  with  their  unpaid  coupons  attached, 
provided  that  a  settlement  of  the  Honduras  Debts  could  be  ar- 
ranged between  the  United  States  and  Honduras  prior  to  August 
4th,  1910. 

This  option  was  subsequently  extended  to  February  4th,  1911. 

To  carry  this  scheme  through,  the  United  States  Government 
on  July  17,  1909,  invited  Honduras  to  deal  with  Messrs.  J.  P. 
Morgan  and  Company,  as  may  be  seen  by  the  following: 

MEMORANDUM. 

"Under  instructions  from  my  Government,  which  I  have  just 
received  by  telegraph,  I  have  the  honor  and  the  pleasure  to  inform 
the  Government  of  Honduras  that  the  firm  of  J.  P.  Morgan  and 
Company  has  informed  my  Government  that  they  are  prepared  to 
agree  on  the  arrangement  of  the  Foreign  Debt  of  Honduras,  the 
delivery  of  the  Railway  and  Wharf  of  Puerto  Cortes  and  the  ad- 
vancement of  a  substantial  amount  for  internal  improvements 
which  may  be  necessary,  acquiring  new  bonds  which  must  be  duly 
secured/' 

"Messrs.  Morgan  and  Company  have  notified  my  Government 
that  the  Council  of  Foreign  Bondholders  had  accepted  the  pro- 
posal of  Morgan  and  Company,  who  now  have  control  of  the 
British  and  American  securities,  including  the  Railway  and  Wharf, 
and  that  the  Council  of  Foreign  Bondholders,  acting  on  behalf 
of  the  holders  of  Bonds,  have  informed  the  British  Secretary  of 
State  for  Foreign  Affairs  of  the  foregoing,  and  that  the  Secretary 
ate  for  Foreign  Affairs,  having  cordially  approved  the  new 
project  has,  by  ic(|u,^j  of  the  Council  of  Bondholders,  pven  notice 
Garden  of  the  chan.Lre  in  the  -ilualion. 

"I  !  •  met  ions  to  manifest  thai  if  the  Government  of 

\v«.uld  send  ;i  special  A'jent  to  I  he  Tinted  Siaies  with 
full  :  in  and  Company.  Hie  ("Jovrrn- 

:  nited  States  would  extend  lo  him  all  facilities. 

"I  beg  to  add  thai  ihe  Gtavenunenl  of  ihe  run  a  feels 

itself  happy  to  see,  in  the  said  proposals,  the  prospect  of  a  good 


25 

result  and  for  a  settlement  upon  a  favorable  basis  for  the  amortiza- 
tion of  the  National  Debt  which  would  be  for  the  prosperity,  tran- 
quility  and  national  strength  of  Honduras/' 

(Signed)     PHILIP  BEOWN. 

Surprised  by  this  invitation  in  the  face  of  an  agreement  closed 
with  creditors,  and  approved  by  the  British  Government,  the 
Government  of  Honduras,  before  complying  with  the  indication 
from  the  State  Department,  addressed  the  British  Minister,  to 
know  the  situation,  and  received  the  following  communication: 

British  Legation,  Guatamala,  July  31,  1909. 
To  His  Excellency,  Don  Jose  Maria  Ochoa, 

Minister  of  Foreign  Eelations,  Tegucigalpa. 
Mr.  Minister: 

"Under  instructions  from  H.  B.  M.  Government  I  must  mani- 
fest to  your  Excellency,  for  the  information  of  the  Government  of 
Honduras,  that  the  Council  of  Foreign  Bondholders  feels  sorry 
that  (circumstances  foreign  to  their  will  had  obliged  them  to 
abandon  the  agreements  for  the  settlement  of  the  Debt  to  which 
they  had  previously  consented. 

"The  Government  of  Your  Excellency  is  therefore  relieved  of 
the  compromise  made  with  the  British  Bondholders  and  is  free 
to  enter  into  new  arrangements. 

"I  have  sent  to-day,  instructions  by  telegraph,  to  H.  B.  M. 
Consul  ad  interim  in  Tegucigalpa  to  notify  Your  Excellency  in 
the  sense  above  referred  to. 

"I  avail  of  this  opportunity  to  renew  to  Your  Excellency  the 
protests  of  my  most  distinguished  consideration  and  esteem." 

(Signed)     LIONEL  CAEDEN. 

The  Minister  of  Finance  of  Honduras  (Senor  Juan  E. 
Paredes),  was  sent  to  New  York  as  "Special  Financial  Agent"  of 
his  Government,  for  the  purpose  of  seeing  what  overtures  Mr. 
Morgan  would  make  for  the  proposed  settlement  of  the  Debt.  He 
was  accompanied  by  the  Secretary  to  the  President  of  Honduras 
(Senor  Valladares). 

Mr.  Paredes  had  two  interviews  with  Mr.  Davison,  of  J.  P. 
Morgan  and  Company,  after  which  Mr.  Frederick  B.  Jennings, 
of  the  Law  Firm  of  S'tetson,  Jennings  and  Eussell,  took  up  the 


26 

subject  with  Mr.  Paredes,  in  behalf  of  the  State  Department  and 
of  the  Bankers. 

Mr.  Ji-nnin(/s  was  a  member  of  the  Honduras  Syndicate,  wliO: 
has  a  Claim  agamst  Honduras.  He  made  the  Drafts  of  the 
proposed  agreements  and  insisted  on  including  the  Claims  in  the 
Contract,  and  did  his  utmost  to  prevent  their  discussion,  in  order 
to  force  Honduras  to  yield  to  the  conditions  imposed  by  Morgan. 

His  plan  was  as  follows  : 

"To  issue  $10,000,000  at  88%  of  their  nominal  value,  with 
5%  Interest  for  Sinking  Fund,  to  be  redeemed  in  40  years. 

"The  net  proceeds  of  the  Loan  to  be  divided  among  the 
Bankers  (J.  P.  Moroni  and  Associates),  the  claimants  Honduras 
Syndicate  (Frederick  B.  Jennings,  Henry  L.  Sprague,  W.  S'. 
Valentine,  etc.),  and  the  Railway  and  Wharf  lessees  (W.  S. 
Valentine,  Geo.  Scott,  Henry  L.  Sprague,  Frederick  S'.  Jennings, 
etc.),  and  the  remainder,,  if  any,  to  the  Railway  contractors. 

"As  security  of  the  new  Bonds  Honduras  must  give  up  all 
Customs  Revenues,  the  Railway  arfd  the  Wharf  at  Puerto  Cortes, 
to  be  administered  by  the  hankers"  own  Agents,  the  products  to 
]>••  remitted  to  the  Fiscal  Audit  of  the  Loan  at  NVw  York. 

In  this  way  Honduras  would  be  deprived  of  its  principal 
revenues  during  \o  years.  The  annual  disbursements  would  be 
as  follow- : 

5%   Interest  OB   $10.000,000  Bonds $500,000.00 

\%  amortization  on  $10,000,000  Bonds 100,000.00 

Customs  collection   expenses    40,000.00 

Fiscal    Agency    Kxpenses    10,000.00 


Total     $(j:,0.(MM).on 

COMPARISON. 

Annuity    as    per    Minim's    proposition *i;:>i>.00(>.00 

Annuity  a-   per  Canlen's   proposition '><;<». non. on 


•   Mnouftl  equivalent   i«  |W5tQOO.DO 

silver    a    year,    which    n  pn-enN    the    remainder    .if    total    Custom* 
uider    the    (  'ardri:  .-nj.    which    was    absolute1 


27 

quired  by  Honduras  to  cover  the  annual  expenses  of  the  administra- 
tion. 

In  40  years,  therefore,  we  would  pay  extra  under  the  Morgan 
plan,  $15,600,000;  but  it  is  not  only  a  question  of  paying  in  excess 
this  enormous  amount,  but  that  the  country  cannot  afford  to 
pay  $650,000  a  year,  as  the  total  income  from  the  government 
revenues  amounts  only  to  $3,500,000  (silver),  equivalent  to 
$1,400,000  gold.  The  balance  left  to  the  Administration  for  all 
its  different  departments  would  be  only  $750,000,  which  is  a  ma- 
terial impossibility. 

As  in  the  distribution  of  the  proceeds  of  the  loan  only  a 
small  portion  is  set  aside  for  material  improvements,  the  develop- 
ment of  the  country  is  not  assured,  neither  the  increase  of  he» 
revenues;  and  if  the  actual  income  of  the  Government  is  reduced 
to  $750,000,  then  Honduras  could  not  even  maintain  her  exist- 
ing status  of  progress. 

To  deprive  Honduras  of  her  Eevenues  for  the  benefit  of  N"ew 
York  Bankers,  means  drawing  away  all  the  money  in  circulation 
i-n  the  country,  bringing  poverty  to  her  people  and  paralization 
to  her  commerce. 

It  is  incredible  that  the  people  of  the  United  S'tates  in  view 
of  -such  flagrant  injustice,  would  consent  to  the  spoliation  of  a 
neighboring  Eepublic  on  account  of  its  being  weak  and  powerless 
to  prevent  such  iniquity. 

The  ruin  of  Honduras  would  undoubtedly  affect  the  business 

y*^— 

interests  of  all  Americans  who  are  looiring  southward  to  increase 
their  trade. 

Honduras  is  a  good  field  for  financial  investments  and  busi- 
ness enterprises  on  a  sound  basis,  provided  equal  opportunities 
are  given  to  all  competitors. 

The  country  is  rich  in  natural  resources,  unexcelled  in 
climate,  and  once  she  gets  transportation  her  rapid  development 
will  be  an  accomplished  fact. 

But,  if  a  New  York  combination,  composed  of  the  represen- 
tatives of  the  most  formidable  monopolies  in  existence,  are  allowed 
to  unjustly  take  control  of  the  country  and  its"  resources,  then  all 
opporunity  for  competitive  enterprises  and  legitimate  investment 
of  capital  by  others  will  be  forever  destroyed. 

Setting  aside  consideration  of  monetary  losses  and  economic 


28 

results  for  Honduras,  its  citizens  must  reflect  over  a  more  serious 
aspect  of  the  proposals  embraced  in  the  Treaty  and  Bankers'  and 
Fiscal  Agents'  agreements. 

We  must  consider  the  loss  of  National  Independence,  and 
when  we  become  contractual  vassals  of  the  money  powers  and 
monopoly,  this  heritage  will  be  transmitted  to  our  children  instead 
•of  the  precious  legacy  of  freedom  handed  down  to  us  by  our  fore- 
fathers. 

It  we  become  a  consenting  party,  we  commit  a  crime  against 
our  country  and  against  our  posterity. 


DOCUMENTS. 


First 

Honduras  Railway  Loan, 
London,  1867. 


33 


HONDURAS  LOAN  OF  ONE  MILLION  STERLING. 
LONDON,  1867. 

HONDURAS   GOVERNMENT  RAILWAY  LOAN. 
£1,000,000. 

"In  Bonds  to  Bearer,  £100,  £500,  and  £1,000  each,  bearing 
10  per  cent.  Annual  Interest,  payable  half-yearly  in  sterling, 
Issued  at  80  per  cent,  and  to  be  redeemed  at  par,  in  sterling,  within 
17  years,  by  Yearly  Drawings,  by  means  of  an  Accumulative  Sink- 
ing Fund  of  3  per  cent  per  annum. 

"The  first  Drawing  will  take  place  on  December  31,  1869. 


"The  payments  by  Subscribers  will  be  as  follows: 


5  per  ce 
10    " 
10    " 
15    " 
20    " 
20    " 

at.  on 
on 
on 
on 
on 
on 

application  

£ 

s. 

d. 

£ 
5 
10 
9 
13 
17 
18 

s. 
0 
0 
10 
8 
10 
2 

d. 
0 
0 

W* 

9 
0 
6 

allotment 

January  1st,  1868,  less  int.. 
July  1st,  1868,  less  int  
January  1st,  1869,  less  int.  . 
April  1st,  1869,  less  int  

0 
1 
2 
1 

9 
11 
10 
17 

3  2 
0 
6 

80  per  cent.  £73     11     10V2 

"Interest  will  be  payable  on  the  1st  of  July  and  the  1st  of 
January  in  each  year,  at  the  London  and  County  Bank,  and,  for  the 
first  installment  of  £15,  will  date  from  October  1,  1867. 

"In  default  of  payment  of  any  of  the  respective  installments,, 
all  previous  payments  will  be  liable  to  forfeiture. 

"The  installments  may  be  anticipated  at  any  time  at  Bank  of 
England  rate. 

"The  Government  of  Honduras  having  agreed  to  appropriate 
to  the  Subscribers  a  moiety  of  the  net  profits  of  the  Railway  dur-r 
ing  15  years  after  the  complete  repayment  of  the  present  Loan,. 
Subscribers  will  receive  as  bonus,  within  one  month  after  allot- 
ment, with  each  £100  Bond,  one  10,000th  deferred  fully  paid-up^ 
Railway  Share  to  Bearer,  entitling  the  holder  thereof  to  receive 
his  proportion  of  such  net  profits. 


34 

PROSPECTUS. 

"The  President  of  the  Republic  of  Honduras,  being  duly 
authorized,  has  given  full  powers  to  Mons.  Victor  Herran,  Minister 
at  Paris,  and  Senor  Don.  Carlos  Gitlerrez,  Honduras  Minister  in 
London,  to  contract  on  account  of  the  Government  a  Loan,  to  be 
applied  towards  the  construction  of  an  Inter- Oceanic  Railway  from 
Puerto  Cabal los,  on  the  Atlantic,  to  the  Bay  of  Fonseca,  on  the 
Pacific. 

"To  show  the  importance  attached  by  the  British  Government 
to  the  Honduras  Inter-Oceanic  Railway,  it  may  be  stated  that  the 
line  has  been  surveyed  on  the  part  of  Her  Majesty's  Government, 
by  Lieutenant  Solonel  Stanton,  R.  E.,  and  a  detachment  of  Royal 
Engineers  sent-  out  for  the  purpose.  Colonel  Stanton  reports,  'that 
the  harbors  at  both  termini  are  unexceptionable/  and  that  the  road 
can  be  constructed  without  any  sharper  curves  or  heavier  gradients 
than  are  to  be  found  on  existing  lines  over  which  locomotives  work 
without  difficulty. 

"The  new  Treaty  betwejen  Honduras  and  Great  Britain  de- 
clares that: 

"In  order  to  secure  the  construction  and  permanence  of  the 
route  or  road  herein  contemplated,  and  to  secure  for  the  benefit 
of  mankind  the  uninterrupted  advantage  of  such  communication 
from  sea  to  sea,  Her  Britannic  Majesty  recognizes  the  rights  of 
sovereignty  and  property  of  Honduras  in  and  over  the  line  of  the 
said  road,  and  for  the  same  reason  guarantees,  positively  and  effica- 
ciously, the  entire  neutrality  of  the  same.  And  when  the  proposed 
road  shall  have  been  completed,  Her  Britannic  Majesty  equally 
engages,  in  conjunction  with  the  Republic  of  Honduras,  to  pro- 
tect the  same  from  interruption,  seizure,  or  unjust  confiscation, 
fnun  whatsoever  quarter  the  attempt  may  proceed. 

'tied   by   the  Honduras  Government    with    France 

siiii  tin-  Tinted  States  contain  the  same  provisions,  and  the  Frencli 

"Government,  consider-ini:  the  public  utility  of  the  Honduras   IJail- 

!  the  offieiiil  quotation  of  the  Honduras  Loan  on 

the  Paris  Bourse. 

followini:   official    ivpor!    l.v    l.'ear-. \dmiral    |)a\is.    made 
to  tho  Secretn n  of  tin-  \a\\  of  tin-  Tnifed  8'tai  nment,  in 

compliance  with  a   resolution  of  the  American  CongTCflfl  on  ihe   I'.Mli 


35 

•of  March,  1866.,  demonstrates  likewise  the  importance  which  the 
United  States  Government  attaches  to  the  construction  of  the  Hon- 
duras Line : 

"The  reader  who  follows  the  course  of  the  surveyors,  natura- 
lists, and  geologist  from  the  capacious,  safe,  and  excellent  harbor 
of  Puerto  Caballos,  through  regions  remarkable  for  their  salubrity, 
fertility,  great  variety  of  climate  and  productions,  and  valuable 
mineral  resources,  to  the  waters  of  the  splendid  harbor  of  La 
Union  (Bay  of  Fonseca),  cannot  but  regret  that  capitalists  have 
not  found  it  to  their  interest  to  carry  out  one  of  the  most  promis- 
ing and  one  of  the  least  embarrassing  enterprises  of  the  day.7' 

"The  Line  of  Railway  has  been  carefully  selected  and  surveyed 
l»v  Mr.  Trautwine  (late  Engineer-in-Chief  of  the  Panama  Rail- 
way), and  an  efficient  Staff;  and  a  contract  has  been  entered  into 
for  the  construction  of  the  whole  line,  with  Stations  and  Rolling 
Stock,  for  a  stipulated  sum  of  about  £8,000  a  mile,  including 
every  outlay,  and  the  works  are  to  be  proceeded  with  in  sections. 

"From  time  to  time,  as  the  installments  of  the  present  loan 
are  received,  the  proportion  to  be  applied  to  the  construction  of 
the  first  section  of  the  Railway  will  be  handed  to  and  held  by 
trustees,  in  trust  to  pay  the  contractor  the  installments  on  his  con- 
tract, as  certified  by  the  Government  Engineer.  The  balance  of 
the  Loan  will  be  applied  in  clearing  the  forests,  and  in  payment  of 
^  engineering  and  other  incidental  expenses. 

"The  Interest  and  Sinking  Fund  are  specially  guaranteed  by 
a  first  charge  upon  the  intended  Railway  itself  and  its  revenue, 
and  also  by  a  first  mortgage  upon  the  whole  of  the  domains  and 
Mahogany  forests  of  the  State  of  Honduras,  which,  according  to 
to  official  report,  are  of  immense  value. 

"It  is  arranged  that  the  whole  of  the  products  of  the  above 
mortgaged  State  Domains  and  Forests  shall  be  consigned  direct 
to  London  by  the  Honduras  Government,  to  Messrs.  Bischoft'sheim 
and  Goldschmidt,  who  will  pay  over  the  proceeds  of  the  sales  to- 
wards the  Annual  Interest  and  Sinking  Fund,  and  the  construc- 
tion of  .the  remaining  section  of  the  Railway. 

"It  has  been  further  arranged  in  the  Contract,  that,  as  soon  as 
any  portion  of  the  Railway  is  completed,  the  Contractor  shall  bring 
down  to  the  Terminus,  free  of  charge,  by  the  return  empty  wagons, 
any  produce  of  the  Government  Forests  and  Domains  that  may  be 
ready  for  shipment  to  England. 


36 

inning  at  the  harbor  of  Puerto  Caballos,  on  the  Atlantic,, 
the  Railway  will  proceed  over  the  table-land  of  Honduras,  in  a  line 
of  230  miles,  to  the  Bay  of  Fonseca,  on  the  Pacific. 

"The  ports  at  either  end  are  spacious,,  safe,  and  easily  accessible 
for  the  largest  ships. 

"The  steaming  distances  from  Liverpool  to  S'an  Francisco,, 
touching  at  Jamaica,  are :  by  way  of  Panama,  7,980  miles ;  Nicara- 
gua, 7,720  miles;  Tehauntepec,  7,740  miles;  Honduras,  7,320  miles. 

"The  distance  between  New  York  and  San  Francisco,  by 
Panama,  is  5,224  miles;  by  Nicaragua,  4,700  miles;  by  Tehaunte- 
pec, 4,200  miles;  by  Honduras,  4,121  miles — a  saving  by  way  of 
Honduras,  as  compared  with  Panama,  the  only  line  on  which  a 
Railway  is  already  constructed,  of  1103  miles. 

"The  difference  in  actual  distance,  coupled  with  the  superiority 
of  ports,  the  facilities  of  embarkation  and  disembarkation,  and  the 
connection  with  the  American  coast  lines,  will  effect  a  saving  in 
time,  as  compared  with  the  Panama  Route,  of  no  less  than  five 
days  between  the  Atlantic  and  Pacific  ports  of  the  United  States. 

"This  line  will  afford  the  easiest,  safest,  and  speediest  route 
between  Great  Britain  and  British  Columbia;  it  will  also  afford  the 
increased  facilities  of  first-class  ports  for  the  establishment  of 
speedy  intercourse  with  Australia  and  New  Zealand,  and  will  bring 
/Jamaica,  Belize,  and  other  British  Possessions  in  the  West  Indies, 
into  the  direct  line  of  communication. 

Last  year  the  dividend  paid  by  the  Panama  Company  was  at 
the  rate  of  24  per  cent  per  annum  on  a  capital  of  £1,600,000,  in 
;;dd  it  ion  to  a  bonus  of  40  per  cent  from  accumulated  profits.  The 
Honduras  Line  will,  in  all  probability,  return  as  much  profit  as 
the  Panama  Line,  if  not  considerably  more. 

^uflicient  of  the  proceeds  of  the  present  issue  will  be  applied 

to  th»    construction  of  the  first  section,  from  Puerto  Caballos  to 

Santiago.      This    section    will     enable    the    exportation    of    the 

Mahogany,  etc..  t<>  take,  place,  the  means  of  transport  now  existing 

•  •\pcn-ive   to   he    remunerative.      Careful    estimates   have 

•••I  the  Honduras  Government  that  the  surplus  revenue  of  the 

Stnt.    hornain-  and  r'oiv>ts  will  be  amply  sufficient  to  complete  the 

whole  line,  without  any  further  issue  of  stock;  but  in  case  it  should 

be  found  ad\ant;iLM'Mii-.  <>n  aeeount  of  i iicreasi n«r  traflic.  In  accelerate 

tin-  opening  of  ih.-  li,iil\\;i\    from  sea   to  Bea,  by  rai-ini:  more  money,. 


37 

further  Stock  will  be  issued  for  the  construction  of  the  remaining 
sections  of  the  Bailway. 

"The  several  contracts  and  other  documents  can  be  inspected 
at  the  office  of  Messrs.  Baxter,  Rose,  Norton  and  Company,  Solici- 
tors No.  6,  Victoria  Street,  Westminister. 

"Applications  for  the  Loan  will  be  received  from  Monday, 
the  llth  of  November,  to  Friday,  the  15th  of  November,  by  the 
London  and  County  Bank,  21  Lombard  S'treet,  and  Branches,  where 
Prospectuses  and  Forms  of  Application  can  be  obtained;  and  in 
Paris,  by  Messrs.  Bischoffheim,  Goldschmidt  and  Company,  26, 
Hue  de  la  Chaussee  d'  Antin.  Payment  on  application  for  the 
Loan  can  also  be  made  at  the  Bank  of  France  and  Branches." 


Second 

Honduras  Railway  Loan, 
Paris,  1869. 


41 

HONDURAS   LOAN   OF   207,509   BONDS    OP   300   FRANCS 
EACH.    PARIS,, 1869. 

INTER-OCEANIC  RAILWAY  CONNECTING  THE 
ATLANTIC  WITH  THE  PACIFIC. 

SECURED  LOAN  TO  THE  GOVERNMENT  OF  HONDURAS. 
(CENTRAL  AMERICA.) 

Subscription,  207,509  Bonds. 

Price  of  the  Bonds,  225  francs,  payable  as  follows: 
25  francs  on  subscription  With  the  right  of  paying  one 

50  francs  on  allotment  or  more  of  these  installments  in 

50  francs  on  1st  June  (1869)  advance,  and  receiving  a  dis- 
50  francs  on  1st  July  (1869)  count  at  the  rate  of  6  per  cent 
50  francs  on  1st  Aug.  (1869)  per  annum. 

Returns.     Repayment,     Participating  Shares. 


"Interest.  Twenty  francs  a  year,  paid  half-yearly  on  the  1st 
of  March  and  the  1st  of  September,  at  Paris,  Brussels,  Antwerp, 
Geneva,  in  cash  without -any  tax  or  deduction,  and  also  at  Berlin, 
Hamburg,  Amsterdam,  Frankfort,  Genoa,  New  York,  at  the  rate 
of  the  day.  The  first  coupon  is  due  on  the  1st  of  September  next. 

"Repayment.  At  par  in  seventeen  years  by  half-yearly  draw- 
ings before  a  Notary  at  Paris;  the  first  drawing  will  be  paid  in 
cash  on  the  1st  of  September,  without  any  tax  or  deduction  what- 
ever. 

"Participating  Shares.  Each,  Bond  will  be  replaced  as  soon 
as  it  is  drawn  by  a  Participating  Share,  which  will  entitle  the 
owner,  after  the  repayment  of  the  Loan,  and  during  a  period  of 
fifteen  years,  to  a  proportional  share  in  the  third  part  of  the 
revenues  of  the  Line. 

"This  participation  is  estimated  at  a  minimum  of  50  francs 
per  annum. 

"As  the  periods  of  the  different  payments  and  profits  since  the 
first  of  March  last  reduce  the  price  of  the  subscription  to  about 
220  francs,  the  produce  of  the  debentures,  taking  into  consideration 
the  premium  of  repayment,  exceeds  12  per  cent,  without  reckoning 
the  value  of  the  Participating  Shares. 


42 

<i  I  . Mi'ANTEES  FOR  THE  DEBENTURES. 

(a)  Mortgage  on  the  Railway  and  on  its  Revenue. 

(b)  Mortgage  on  the  domains  arid  forests  of  the  State,,  of 
which  the  annual  revenue,,  according  to  the  official  report  of  the 
engineers,  amply  exceeds  the  sum  necessary  for  the  regular  payment 
of  interest  and  redemption. 

(c)  Convinced  of  the  commercial  and  political  importance 
of    the    Inter-Oceanic    Honduras    Railway,    the    Governments    of 
France,  England,  and  the  United   States  have,  by  international 
treaties,  specially  guaranteed  the   inviolability   and  neutrality   of 
the  undertaking,  from  the  opening  of  the  Line. 

(d)  A  Commission  has  been  appointed  to  superintend  the 
employment  of  the  Loan,  which  is  to  be  exclusively  devoted  to  the 
completion  of  the  Line  already  in  process  of  construction. 

This  Commission  is  composed  of: 

His  Excellency,  M.  V.  Herran,  Officer  of  the  Legion  of  Honor^ 
President  (0.) ;  and  MM.  L.  Pelletier,  Chevalier  of  the  Legion  of 
Honor,  an  eminent  merchant  (C.). 

R,  Bischoffsheim. 

M.  Scheyer. 

(e)  The  execution  of  the  Line  is  "entrusted,  by  contract,  to 
Messrs.  Waring  Brothers  and  MacCaudlish,  of  London. 

Distance  from  New  York  to  San  Francisco: 

My   way  of   Panama 9,730  kilometres. 

By  way  of  Honduras 8,074  kilometres. 


Thus  the  Honduras  route  saves 1,65(5  kilometres. 

"Tin-    proceeds    of    the    Panama     Line    an1    well    known.      The 
annual  traffic  is  about  200,000  passengers,  and  meivhandise  valued 
•  IT  a  thousand  million   franc-. 

(f)      Tin*  statement    of    the   Sinking    Fund    of    the    Loan,    the 
P8,   the   Intel-national   Treaties,  are  deposited 

in   the  Chancellor's   OHier   ,,!'   tin-    Legation.    1,'ne  de   la   Chjiusse,-  d' 
Antin.  where  the  puhlie  may  inspect   them. 

Y.   IIKIM.'AN. 

MniM«T    Plenipotentiary   of    I  l.mdura-. 


43 

"The  subscription  will  be  open  on  Wednesday  the  l'9tli,  to 
Friday  the  28th  of  May,  from  eight  in  the  morning  until  five  in 
the  evening,,  in  the  following  towns: 

Paris.  At  the  Chancellor's  Office  of  the  Legation,  and  of  the 
Consulate  General  of  Honduras,  10  Rue  de  la  Chaussee  d'  Antin;. 
at  Messrs.  Dreyfus,  Scheyer  and  Company,  Government  bankers,. 
Rue  de  la  Grange  Bateliere  16. 

"Subscription  may  be  paid  at  all  the  branches  of  the  Bank 
of  where  the  Government  has  deposited  the  provisional  and  defini- 
tive shares  of  the  Loan. 

"The  subscription  will  also  be  opened  at  Brussels,  Hanover,. 
Berlin,  Hamburg,  Amsterdam. 

"Subscribers  who  wish  to  pay  up  beforehand  may  send  at 
once  the  whole  sum,  223  francs,  90  cents  per  share,  less  discount, 
and  the  definitive  shares  will  be  delivered  or  sent  to  them. 

"After  the  subscription  is  completed,  even  if  before  the  25th. 
of  May,  no  fresh  subscription  will  be  taken." 


Third 

Honduras  Railway  Loan, 
London,  1870. 


47 

HONDURAS  LOAN  OF  TWO  MILLION"  FIVE  HUNDRED 
THOUSAND  POUNDS.     LONDON,  1870. 

1870. 

"Honduras  10  per  cent  Government  Railway  Loan  £2,500,000. 

"In  25,000  Bonds  of  £100  each,  bearing  10  per  cent  Annual 
Interest,  payable  half-yearly,  viz.,  on  1st  of  January  and  1st  of 
July. 

"Issued  at  80  per  cent,  and  to  be  redeemed  at  par,  in  Sterling, 
v.'ithin  15  years,  by  Yearly  Drawings,  on  the  31st  of  December  in 
each  year,  by  means  of  an  accumulative  Sinking  Fund  of  3  per 
cent  per  annum. 

"The  first  drawing  to  take  place  on  the  31st  of  December, 
1870. 


"The  installments  to  be  paid  as  follows : 

15  per  cent,  on  Allotment. 

10  per  cent,  on  1st.  of  August. 

10  per  cent,  on  1st.  of  September. 

15  per  cent,  on  1st,  of  October. 

15  per  cent,  on  1st.  of  Xovember. 

15  per  cent,  on  15  of  December,  when  definitive  Bonds, 
with  a  Coupon  of  £5  payable  on  the  1st  of  January  at- 
tached, will  be  given  in  exchange  for  scrip. 

80  per  cent. 

"Interest  will  date  from  the  1st.  of  July. 

"The  installments  may  be  anticipated  at  any  time  when  an 
installment  falls  due,  under  discount  at  the  Bank  of  England 
rate. 


PROSPECTUS. 

"His  Excellency,  Senor  Don.  Carlos  Gutierrez,  Minister 
Plenipotantiary  of  the  Government  of  the  Republic  of  Honduras 
to  the  Court  of  St.  James,  being  authorized  by  full  powers,  dated 


48 

the  14th.  of  March,  1870,  to  raise  for  his  Government  a  Loan  of 
Two  Millions  Sterling  net,  for  the  completion  from  sea  to  sea  of 
the  Inter-Oceanic  Honduras  Bail  way.  lias  instructed  the  London 
and  County  Bank  to  receive  applications  for  same. 

"The  Loan  will  be  represented  by  Bonds  to  bearer  of  £100 
each,  bearing  interest,  until  redeemed,  at  the  rate  of  10  per  cent 
per  annum,  payable  half-yearly  on  the  1st.  of  January  and  the  1st.. 
of  July  in  each  year,  at  the  London  and  County  Bank. 

"The  whole  Loan  will  be  redeemed  within  15  years  by  an  ac- 
cumulative Sinking  Fund  of  3  per  cent  per  annum,  to  be  applied 
liy  annual  drawings,  the  said  drawings  to  take  place  on  the  31st. 
of  December  in  each  year,  in  the  presence  of  the  Honduras 
Minister  in  London,  a  representative  of  Messrs.  Bischoffsheim  and 
Goldschmidt,  and  a  Notary  Public,  and  the  Bonds  so  drawn  will 
be  paid  within  one  month  thereafter. 

'This  Loan  is  raised  to  complete  the  Inter-Oceanic  Railway, 
and  to  place  the  Line  from  sea  to  sea  in  thorough  and  efficient 
working  order.  As  in  the  case  of  the  previous  Loan,  the  proceeds 
of  the  present  Loan  will  be  paid  into  the  hands  of  Trustees  ap- 
pointed for  that  purpose. 

"The  entire  Railway  and  its  revenues  is  mortgaged  to  the 
Bondholders  of  all  denominations,  and  the  proceeds  of  the  State 
domains  will  be  applied  in  a  like  manner. 

"The  first  section  is  contracted  to  be  finished  next  November. 
Messrs.  Waring  Brothers  and  MacCaudlish  have  undertaken,  under 
heavy  penalty,  to  complete  the  second  section  at  the  end  of  1871; 
and  a  new  contract  has  been  signed  with  them  to  complete  the 
entire  Kail  way  from  Puerto  Cahallos,  on  the  Atlantic  Coa>t,  to 
the  Bay  of  Fonseca,  on  the  Pacific,  and  to  deliver  it  over  in  etficient 
working  order  in  the  Autumn  of  1872. 

•'Tin-  Railway  is  under  the  protection  of  the  British  (Jovern- 
ni.'iit  by  a  Treaty,  which  d< dares: 

"In    order  to  secure   the  construction   and   permanence  of  the 

route  or  road  herein  contemplated,  and  also  to  secure  for  the  benefit 

of  mankind    the  uninterrupted   advantages  of  such   communication 

from    sea    t.     sea,    Her    Kritannic    Ma  jest  v    reeogni/es    the    right-   "f 

•\    and    property    of    Iloiidiira<    in    and    over    the    line    of 

the  said    road,  and    for  the  same   rea-oii   'jiiarantees,   positively  and 

on-!v.    the    entire    iieutralitv    uf    the    same.       And    when    the 


49 


proposed  road  shall  have  been  completed,  Her  Britannic  Majesty 
equally  engages,  in  conjunction  with  the  Republic  of  Honduras, 
to  protect  the  same  from  interruption,  seizure  or  unjust  confisca- 
tion, from  whatsoever  quarter  the  attempt  may  proceed." 

Treaties  signed  by  the  Honduras  Government  with  France 
and  the  United  States  contain  the  same  provisions. 

"A  general  Bond,  executed  by  His  Excellency,  Don.  Carlos 
Gutierrez,  on  behalf  of  the  Government  of  Honduras,  will  be  de- 
posited at  the  Bank  of  England  for  security  of  the  entire  Loan, 
and  the  Definitive  Bonds  of  this  Loan  will  be  signed  by  His  Excel- 
lency, Don  Carlos  Gutierrez,  on  behalf  of  his  Government,  and 
countersigned  by  Messrs.  Bischoffsheim  and  Goldschmidt,  agents 
of  the  Government  in  England. 

"Applications  for  the  Loan  will  be  received  by  the  London 
and  County  Bank,  21,  Lombard  Street,  and  Branches,  where 
Prospectuses  and  Forms  of  Application  can  be  obtained. 

"London,  June  20th,  1870." 


Honduras  Interoceanic  Railway  Company,  Ltd. 
1873. 


MEMORANDUM  OF  ASSOCIATION  OF  THE  HONDURAS 
IXTER-OCEANIC  RAILWAY  COMPANY  (LIMITED). 

1873. 


1,  The  name  of  the  Company  is  the  Honduras  Inter-Oceanic 
Railway  Company,  Limited. 

2,  The  Registered  Offices  of  the  Company  will  be  in  Eng- 
land.. 

3,  The  objects  for  which  the  Company  is  established  are  the 
following : 

(A)  To  obtain  from  the  Government  of  the  Republic  of 
Honduras  and  accept  concessions  or  grants  of  all  or  any  of  the 
following  Railways,,  works,  lands,  rights,  powers  and  privileges, 
viz: 

(a)  Such  portion  of  the  Honduras  Inter-Oceanic  Rail- 
way as  is  already  completed  and  open  for  traffic, 
or  is  in  course  of  construction,  together  with  all 
the    Stations,   houses,   buildings,   wharves,   quays, 
jetties,  and  appurtenances  thereto  belonging  or  at- 
tached, or  forming  part  thereof,  together  with  all 
the  rolling  stock,  plant,  machinery,  rails,  materials, 
stores,  equipments,  and  other  effects  belonging  to 
the  Government,  and  used,  or  intended  to  be  used, 
for  the  construction,   equipment,  maintenance  or 
working  of  the  said  Railway  with  its  appurten- 
ances, or  for*  any  of  the  purposes  thereof. 

(b)  The  land  required  for  the  completion  of  the  said 
Railway,  from  the  Atlantic  Ocean  to  the  Pacific 
Ocean,    with   all    necessary    and   proper   wharves, 
quays,  jetties,  and  other  conveniences, 

(c)  Such  lands,  adjoining  or  near  to  the  said  Rail- 
way, as  may  be  agreed  on  between  the  said  Govern- 
ment and  the  Company,  with  such  exclusive  rights 
of   cutting   and   exporting  timber  grown  thereon 
free   of  duty  and  other  charges,  as  may  also  be 
agreed  on. 


54 

(d)     Such  of  the  mines  belonging  to  the  Government 

of  Honduras,   and  at  present  unallotted,  and  at 

the  disposal  of  the  State,  as  may  be  agreed  on 

between  the  Government  and  the  Company,  subject 

to  such    royality     (if    any),    whether    fixed    or 

fluctuating,  as  may  also  be  agreed  upon. 

(B)  To  construct,  complete,  maintain,  equip,  and  work  the 
said  Eailway,  and  to  work,  let,  manage,  and  grant  licenses  for 
the  working  of  all  or  any  of  the  Company's  lands,  land  rights, 
timber,  mines  and  mineral  rights,  and  to  export,  sell,  and  dispose 
of  the  produce  thereof. 

(C)  To  sell,  demise,  or  otherwise  dispose  of,  all  or  any  of 
the  lands,  mines,  rights  and  privileges,  or  other  property  of  the 
Company  (including  the  said  Kailway,  with  its  appurtenances). 

(D)  To  acquire  any  other  concessions,  grants,  or  privileges 
from  the  Government  of  Honduras,  or  any  other  foreign  Govern- 
ment, and  to  enter  into  any  contracts  with  any  Government,  Cor- 
poration, or  persons,  for  any  of  the  purposes  of  the  Company. 

(E)  To   obtain    the   incorporation   of   the   Company    as   a. 
Societe  Annonyme,  or  Sociedad  Anonima.  according  to  the  laws 
of  the  Republic  of  Honduras,  or  any  Foreign  State,  relating  to 
joint  stock  companies. 

(F)  To  do  all  such  other  things  as  are  incidental  or  condu- 
cive to  any  of  the  foregoing  purposes. 

1.     The  liability  of  the  members  is  limited. 

5.  The  capital  of  the  Company  is  £5,347,720,  divided  into 
30,427  Shares  of  £100  each,  to  be  called  A  Shares;  177,135  Shares 
of  £12  each,  to  be  called  B  Shares;  and  S.D70  Shares  of  £20  each, 
to  be  called  C  Shares. 

The  Shares  may  be  issued  as  fully  paid  up  to  the  holders  of 
the  bonds  of  tbe  Honduras  (Jovernment  Railway  Loans,  issued  in 
London,  in  ISI'M  and  1*10,  or  tin-  loan  issued  in  Paris  in  the 
year  1>».'.».  or  of  thr  Federal  Debt  of  the  State  of  Honduras  i 
in  1867,  in  exchange  for  their  bonds  in  the  proportion  of  one 
share  for  even  I'  100  in  either  of  the  said  Loans,  and  so  in  pro- 
jM.rtion  for  Umd-  o|'  any  larger  or  l<  B8er  denominations.  The  Com- 
IMII\  -  lit  from  any  of  the  Suh-rrihers  of  Iliis  Memorandum 

Und-  of  th€  -aid  Honduras  QOTeTl  tnenl  loans  of  ISC,;.  lS(i!»  and 
1870,  or  of  the  said  TVdrral  debt  in  or  toward-  payment  of  the 
shar*  'ihed  for  !.\  them  dv  at  par." 


55 

APPENDIX  TO  THE  MEMORANDUM  OF  ASSOCIATION 

OF  THE  HONDUEAS  INTER-OCEANIC  RAILWAY 

COMPANY,  LIMITED. 

ISSUE  OF  SHARE  CAPITAL  FOR  CONVERSION. 

THE  HONDURAS  INTER-OCEANIC  RAILWAY  COMPANY, 

LIMITED. 

INCORPORATED  UNDER  THE  COMPANIES  ACTS,  1862  AND  1867. 
ISSUE  FOR  CONVERSION. 

The  Share  Capital  of  the  Company  amounts  to  the  sum  of 
£5,347,720,  to  be  represented  by  the  conversion  of  the  Bonds  held 
in  the  existing  Honduras  Loans. 

29,638  "A"  Shares  of  £100  each £2,963,800 

8,970  "C"  Shares  of    £20  each 179,400 

To  be  exchanged  for  the  outstanding  Bonds  of  the  1867  and 
1870  Loans. 

177,135  "B"  Shares  of    £12  each £2,125,620 

To  be  exchanged  for  the  Bonds  of  the  1869  Loan,  French 
Issue. 

789  "A"  Shares  of  £100  each  . £78,900 

To  be  exchanged  for  the  outstanding  Bonds  of  the  Federal 
Debt. 

TRUSTEES. 

Sampson  Copestake,  Esq.  (Messrs.  Copestake,  Moore,  Cramp- 
ton  &  Co.). 

Alderman  Sir  Thomas  White,  Ex-Sheriff  of  London  and  Mid- 
dlesex (with  power  to  add  to  their  number) . 

DIRECTORS  (Pro  Tern.)  : 

The  Committee  of  Honduras  Bondholders 

(Specially  re-appointed  for  the  purpose). 

BANKERS. 

Messrs.  Glyn,  Mills,  Currie  &  Co.,  67,  Lombard  St.,  E.  C. 

AUDITORS. 

Messrs.  Deloittee,  Dever,  Griffith  &  Co.,  4,  Lothbury,  London. 
Messrs.  James  and  F.  Ford,  76  and  77  Cheapside. 


56 

JOINT  SOLICITORS. 

John  Tucker,  Esq.,  28,  S't.  Swithin's  Lane,  London,  E.  C. 

Augustus  Beddall,  Esq.,  Baltic  Chambers,  108,  Bishopsgate 
St.,  E.  C. 

CHIEF  ENGINEERS. 

Charles  Seymour,  Esq.,  M.  Inst.  C.  E.  (New  York),  Chief 
Engineer  of  the  Madisonville  and  Bowling  Green  Railway,  the 
Henderson  Nashville  Railroad,  the  Edgefield  and  Kentucky  Rail- 
road, etc.,  etc.,  and  formerly  the  Chief  of  Staff  on  the  Atlantic 
and  Great  Western  Railroad. 

SECRETARY. 
C.  F.  Denny,  Esq. 

OFFICES. 

In  London,  4,  Westminister  Chambers,  Victoria  Street,  S'.  W. 
In  Paris,  2,  Rue  Drouot. 

PROSPECTUS. 

First  issue  of  20,000,  10  per  cent  First  Mortgage. 
Debenture  Bonds  of  £100  each  at  Par, 
Being  part  of  25,000  which  the  Company  have  power  to  issue. 


THE  HONDURAS  INTER-OCEANIC  RAILWAY  COMPANY, 

LIMITED. 

DEBENTURE  CAPITAL  £2,500,000. 

"It  is  proposed  to  issue  this  Capital  in  Bonds  of  £100  each, 
bearing  interest  at  10  per  cent  per  annum. 

"The  Bonds  to  be  redeemed  at  par  by  An  MUM!  Drawings,  and 
by  the  operation  of  a  Sinking  Fund,  in  25  years. 

"The  first  Drawing  to  take  place  on  the  31st.  of  December. 
1876,  and  the  drawn  Bonds  will  be  paid  on  the  next  succeeding 
15th  day  of  January,  when  the  interest  thereon  will  cease. 

"The  Bonds  will  be  issued  to  bearer,  with  Coupons,  payable 
half-yearly  on  the  1st.  of  January  and  the  1st.  of  July  in  eaeh  year, 
at  the  Offices  of  the  Compnn\. 

"The  tir.-t  payment  of  interest  to  take  place  on  the  1st.  of 
July,  is: 


57 

The  President  of  the  Republic  of  Honduras  to  the  Inhabitants 

thereof. 

Notice  is  hereby  given:  That  the  Sovereign  Constitutent 
Congress  has  decreed  as  follows : 

The  Sovereign  Constitutent  National  Congress  of  the  Re- 
public. 

Considering  that  the  fresh  negotiations  entered  into  by  the 
Minister  Plenipotentiary,  Senor  Don.  Carlos  Gutierrez,  and  the 
Special  Commissioner,  Dr.  Don.  C.  E.  Bernhard,  with  the  Limited 
Company  for  the  construction  of  the  Honduras  Inter-Oceanic  Rail- 
way, remove  the  great  difficulties  presented  by  the  system  adopted 
for  the  completion  of  that  undertaking;  and  considering  that  they 
tend  to  promote  one  of  the  greatest  interests  of  the  Republic,  the 
Assembly,  with  the  respective  documents  before  it. 

DECREES. 

Art.  1.  The  Contracts  concluded  in  London,  on  the  12th. 
day  of  July  of  the  present  year,  by  the  aforesaid  Messrs.  Gutierrez 
and  Bernhard,  with  the  Limited  Company,  is  approved,  on  the 
same  terms  as  it  was  approved  by  the  Provisional  Government  of 
the  Republic,  for  the  continuation  and  completion  of  the  works 
of  the  Inter-Oceanic  Railway. 

Art.  2.  In  order  that  the  aforesaid  Contract  may  have  full 
effect,  and  Honduras  be  bound  to  the  Contracting  Company,  it  is 
indispensable  that  the  members  of  the  latter  should  authorize  the 
deed  of  the  aforesaid  Contract  by  the  signatures  of  their  legal 
representatives,  in  the  form  and  according  to  the  regulations 
prescribed  by  the  laws  of  Great  Britain  for  the  execution  and  ful- 
fillment of  Contracts  of  this  nature. 

Given  at  Comayagua,  in  the  Sessions  Hall  of  the  National 
Constitutent  Congress,  on  the  24th  of  December,  1873. 

(Signed)  R.  MIDENCE,  Deputy,  President. 

P.  HERNANDEZ,  Deputy,  Secretary. 
PEDRO  RIVERA  BUSTILLO,  Dep.,  Sec. 

Therefore,  let  this  be  promulgated  and  printed. 

(Signed)     CELEO  ARIAS. 

JEREMIAS  CISNEROS,  Minister  for  Foreign  Affairs. 

Comayagua,  December  25,  1873. 


EXTRACTS 

From  the  Bluebook,  Containing  the  Report  Issued  by  the 

Select  Committee  of  the  British  Parliament, 

1875. 


61 

The  Parliamentary  Select  Committee  said,  on  the  24th  page 
of  their  report : 

"It  will  l)e  seen  that  Honduras  has  thus  become  indebted  in 
respect  of  principal  in  a  sum  of  £5,990,108  (approximately),  m 
return  for  which  she  has  engaged  to  pay  £695,700  annually,  in 
periods  varying  from  fifteen  to  seventeen  years.  The  interest 
(apart  from  Sinking  Fund)  now  in  arrears  amounts  to  £1,230,164. 
Bonds  of  the  nominal  value  of  £692,879  have  been  paid  off  or 
cancelled,  leaving  £6,527,393  now  due  for  principal  and  interest. 
In  return  -for  this  liability  Honduras  has  secured  an  abandoned 
section  of  a  line  of  railway  fifty-three  miles  in  length,  for  which 
the  contractors  have  received  £689,745" 

The  Parliamentary  Committee  utter  these  significant  word* 
on  page  46  of  the  report: 

"Your  committee  do  not  dwell  on  the  transactions  by  which 
such  enormous  sums  have  been  abstracted  from  the  Honduras 
loans,  and  appropriated  among  those  who  were  entrusted  with 
its  management.  Such  acts  have  no  more  to  do  with  foreign  loans 
than  with  any  other  transaction  by  which  the  money  of  one  per- 
son comes  into  the  possession  of  another,  and  is  converted  to  the 
use  of  the  depositaries.  A  remedy  for  such  proceedings  ought 
to  be  found  in  the  tribunals  of  the  country." 


Bondholders'  Proposition 

For  the  Settlement  of  the  External  Debt  of  Honduras, 

1903. 


65 

Tegucigalpa,,  January  28,  1903, 

To  the  Hon.  Council  of  Ministers  of  Honduras,, 

Tegucigalpa. 

Gentlemen: — As  the  representative  in  Honduras  of  the  Cor- 
poration of  Foreign  Bondholders.,  which,  in  the  name  of  the  Bond- 
holders, is  charged  with  the  arrangement  of  the  Foreign  Loans  of 
Honduras  of  1867,  1869  and  1870,  I  have  the  honor  to  inform 
you  that  following  the  instructions  I  have  received  from  the 
President  last  year,  the  Corporation,  with  the  aid  of  the  Squier 
Syndicate,  has  been  able  to  give  a  solution  to  the  difficulties  that 
until  this  date  have  surrounded  this  matter. 

I  ha,ve  the  honor  to  submit  herewith  for  your  consideration 
a  project  of  law  based  in  an  agreement  made  in  London,  England, 
on  December  4th,  1902,  between  the  Corporation  of  Foreign  Bond- 
holders and  the  Squier  Syndicate,  of  New  York.  This  project 
of  law  includes  the  proposal  for  an  arrangement,  which  I  do  not 
doubt  will  be  well  received  by  the  Government  of  Honduras,  since 
its  terms  are  extremely  liberal  for  Honduras,  and  it  stipulates  the 
completion  of  the  Inter-Oceanic  Railway — a  most  important  work 
for  the  Republic. 

You  will  see  that  it  also  proposes  to  cancel  the  foreign  loans  of 
Honduras  at  the  rate  of  £200,000  per  annum,  in  exchange  for  a 
payment  by  Honduras  to  the  Foreign  Bondholders  of  the  Railway 
and  other  properties  mortgaged  to  them,  so  that  in  twenty-six  years, 
the  Foreign  Debt  of  Honduras  will  be  cancelled. 

The  first  four  annual  installments  of  £20,000  each  can  be  at 
present  easily  payed  by  the  country,  and  the  surplus  at  the  end 
of  each  period  of  4  years  will  be  more  than  balanced  by  the  in- 
crease of  the  revenue  of  the  country  due  to  the  great  advance  of 
trade  and  progress  in  Honduras,  which  will  be  brought  about  by 
the  construction  and  operation  of  the  Inter-Oceanic  Railway. 

The  Squier  Syndicate  has  made  possible  the  projected  arrange- 
ment with  the  Bondholders  through  a  payment  to  the  'Corporation, 
as  purchase  value  of  the  Inter-Oceanic  Railway,  at  the  rate  of 
£2.10 — in  cash  for  each  £100  in  Bonds  presented  for  redemption. 
The  amount  required  for  the  redemption  of  the  total  number  of 
Bonds  at  the  rate  of  £2.10  is  $650,000  gold,  to  be  paid  immediately 
upon  the  completion  of  the  arrangements. 


.60 

.It  is  a  pleasure  for  me  to  inform  YOU  that  the  President  of 
the  Squier  Syndicate,  Mr.  Frank  Squier,  is  a  brother  of  E.  Geb. 
Squier,  who  dedicated  so  many  years  of  his  life  to  the  advance- 
ment of  the  interests  of  Honduras,  being  instrumental  for  the 
devolution  of  the  Bay  Islands  to  this  Country. 

Finally,  I  can  say  that  the  works  of  the  Northern  Railway  of 
Ouatemala,   having  been   started   again   formally,   it   is   of   great 
importance  to  establish  the  works  of  the  Inter-Oceanic  Railway  of 
Honduras  before  completion  arises  in  the  neighboring  Republic. 
With  the  highest  consideration,  etc., 

(Signed)     W.  J.  BAIN, 

Representative  of  the  Corporation  of 

Foreign  Bondholders. 

PROJECT  OF  LAW  FOR  THE  SETTLEMENT  OF  THE 
FOREIGN  LOANS',  WHICH  THE  NATIONAL  CON- 
GRESS OF  HONDURAS  SHALL  ISSUE. 

Article  1.  Subject  to  the  provisions  of  Article  10,  of  this, 
ihe  S'tate  absolutely  cedes  and  assigns  to  the  holders  of  Bonds  of 
the  Loan  of  the  10%  (1867),  of  the  Loan  of  6  2/3%  (1869),  and 
of  the  Loan  of  10%  (1870) — which  hereafter  will  be  called  Rail- 
way Loans — the  Inter-Oceanic  Railway  of  Honduras,  from  Puerto 
Cortes,  on  the  Atlantic  Coast,  to  the  Bay  of  Fonseca,  on  the 
Pacific,  with  all  its  equipment  and  revenues,  and  also  all  the 
domains  and  forest  of  the  State  with  all  their  products  and  pro- 
ductions, such  as  Mahogany  and  other  woods,  etc.,  as  they  are 
described  in  the  concessions  of  said  Railway,  granted  in  the  years 
of  1853  and  1865,  and  assigned  and  mortgaged  for  security  of  said 
Railway  Loans  on  the  terms  of  their  issue,  and  also  said  Conces- 
sions and  all  thejr  rights,  in  trusts,  benefits  and  advantages  by 
them  respectively  granted. 

Article  2.     The  Cession  and  assignment  made  in  Ihe  preced- 
iHicle  are  made  with  the  object  that  the  holders  of  Bonds  of 
said    L'ai  n-    IIIMV    lr;in>!Vr    or    invest    the    same.    Mini    nil 

proper t.  concessions,  riirhis.  interests,  benefits  and  advantages  in 
them   involved  or  by  them  <le>rrihe<l   to  or  in  the  Squire  Syndicate, 
of  New  York  (which  ha-  ••nj.-rpd  into  agreements  with  the  Govern- 
ill.    c..iiij.letioii  l.v  its  appointees,  or  concessionaires,  of 


67 

said  Railway),  in  exchange  of  the  payments  or  security  for  the 
payments  by  it  to  said  Bondhiolderrs,  prescribed  by  an  agree- 
ment made  in  London.,  the  fourth  day  of  December,  of  1902,  be- 
tween the  Syndicate  and  the  Corporation  of  Foreign  Bondholders, 
the  latter  acting  jointly  with  the  Committee  of  Bondholders  of 
the  Eailway  Loans  of  the  State  of  Honduras,  and  in  representation 
of  said  Bondholders. 

The  State  by  these  presents  agrees  to  and  approves  the  absolute 
investment  in  the  Squier  Syndicate  of  all  the  rights  of  the  holders 
of  the  Railway  Bonds  at  the  time  and  in  the  cases  in  them  men- 
tioned and  established. 

Article  3.  For  the  Amortization  of  the  Bonds  of  the  Railway 
Loans  and  of  the  25%  Loan  of  1867,  the  Government  will  pay  to 
the  Agents-  of  the  Bondholders  in  Honduras  the  following  amounts, 
as  follows : 

(1)  The  sum  of  £20,000  in  each  one  of  the  first  four 
years,  which  will  begin  and  contains  from  the  first 
day  of  July  of  1903. 

(2)  The  sum  of  £24,000  in  each  one  of  the  next  follow- 
ing four  years ;  and  in  the  fifth  and  following  years 
equal  annual  sums  increased  by  £4,000,  after  each 
period  of  four  years  until  it  amounts  to  £40,000  in 
the  twenty,  first  year  and  continuing  so  and  until 
and  while  the  amortization  at  a  rate  of  £200,000 
per  annum  is  accomplished  according  as  is  provided 
for  in  the  following  Article. 

Article  4.  The  sum  above  mentioned  shall  be  applied  by  said 
Corporation  for  the  redemption  of  the  said  Loans  in  such  manner 
that  Bonds  to  the  amount  of  £200,000  of  one  or  more  of  said  Loans 
with  all  their  unpaid  coupons  be  cancelled  in  each  year  and  de- 
livered to  the  Government  or  its  representative  in  London  or 
destroyed  by  incineration  or  otherwise  as  the  Government  may 
order. 

Article  5.  The  Corporation  will  be  charged  with  the  duty 
of  obtaining  the  Bonds  and  amortize  them  by  offers  of  purchase  or 
.by  drawing?.  The  amortization  will  be  effected  as  soon  as  possible 
after  the  funds  are  deposited  every  six  months  according  to  the 
plan  that  the  Corporation  shall  devise  and  be  submitted  to  and 
approved  by  general  meeting  of  Bondholders  which  the  Corporation 


68 

will  convene  at  London.  The  aforesaid  plan  shall  make  provision 
for  the  repayment  to  the  Corporation  of  all  expenses  for  all  facts 
and  external  negotiations  and  for  the  execution  of  the  arrangement. 
ft  must  establish  also  the  details  to  carry  through  the  operation, 
always  subject  to  the  condition  that  Bonds  to  the  amount  of  £200- 
000  be  annually  redeemed  as  above  prescribed. 

Article  6.  For  security  of  said  annual  payments  the  State 
assigns  and  mortgages  all  the  Customs  Revenues  of  the  Republic, 
and  said  annual  payments  shall  be  a  first  and  preferential  obliga- 
tion over  any  other  payment.  To  this  effect  the  collection  of 
Customs  of  Puerto  Cortes  is  authorized  and  ordered  irrevocable  by 
this  law,  and  without  necessity  of  new  order  from  the  Government 
to  pay  every  week  to  the  agent  of  the  Bondholders  in  Honduras, 
who  shall  be  appointed  by  the  Corporation,  the  fifty  secondth  part 
of  the  annual  installment  then  in  course,  according  to  Article  3,. 
of  this  law,  besides  (as  per  account  rendered  by  the  Agent  from 
time  to  time)  the  expenses  made  by  him  for  remittances  to  London 
and  the  exchange  expenses.  If  at  any  time  the  income  of  the 
Custom  House  of  Puerto  Cortes  were  not  sufficient  to  provide  the 
amount  required,  the  weekly  payment  will  be  completed  from  the 
Custom  House  designated  by  the  Government  in  accord  with  the 
( 'orporation  of  Foreign  Bondholders.  The  Agent  will  remit  to  the 
Corporation  every  two  weeks  the  funds  collected. 

Article  7.  If  in  any  year  the  Customs  Revenues  giv"  any 
surplus  after  providing  tl'e  payment  in  gold  of  the  annual  sums 
in  Article  3.  and  alter  selling  aside  $1,000,000  for  the  expenditures 
of  the  Government,  25%  of  such  superabit  will  be  paid  bv  the 
(iovernmeni  to  the  Corporation  and  distributed  as  an  addiiional 
payment  amon«r  the  Bondholders,  as  shall  he  determined  in  the 
plan  mentioned  in  Article  •"». 

Article  S.  The  afore-aid  payments  will  continue  faithfully 
and  punctually,  in  peace  or  in  war.  and  shall  also  lie  free  of  tax&j 
of  ;iny  charirc  by  the  Stale. 

Article  !>.  The  (iovernmenl  of  Honduras  will  invite  the  Gov- 
ernment- of  (ireat  Hrilain  and  the  Tinted  Mates  to  take  -\  formal 
note  of  tin-  arrsmirements  cMWicd  hy  this  law. 

Article   10.      The  arranvj-menl   herein  made  will  Infill  to  he  in 
and  may  he  (.iterative  ami  binding  "i>  lite  State  ;md  the  Koiid 
hold'  "ii   a-   ihev   are   accepted    hy   a^  iv\  olul  ion   at    a    general 


69 

meeting  of  the  Bondholders,  which  the  Corporation  of  Foreign 
Bondholders  will  convene  according  to  the  laws  and  by-laws  of  said 
CorDoration;  a:ptf_which  will  take  place  in  London,  and  when  the 
said '.re  volution  be  approved  then  all  the  rights  of  the  holders  of  the 
Railway  Loans,  either  by  the  obligation  of  the  original  mortgage  or 
the  security  given  by  the  Bonds  of  said  Loans,  or  by  Article  1  of 
this  law,  and  by  the  same  ceded  and  assigned,  or  that  is  expressed 
to  be  so,  will  be  absolutely  invested  in  said  Squier  Syndicate,  as 
its  own  property  and  free  of  any  pretension  or  claim  on  the  part 
-of  the  Bondholders. 


AGREEMENT. 

Agreement  made  this  4th  day  of  December  of  1902,  between 
the  Squier  Syndicate,  of  New  York  (hereinafter  called  "The  Syndi- 
cate"), of  the  one  part,  and  the  Corporation  of  Foreign  Bond- 
holders of  London,  acting  in  this  in  accord  with  the  Committee 
-of  the  holders  of  Bonds  of  the  External  Loans  of  Honduras,  say 
of  the  State  of  Honduras,  and  as  representative  of  the  holders  of 
said  Loans  (hereinater  called  the  "The  Corporation"  and  the 
"Committee"  respectively),  of  the  other  part. 

Whereas,  the  external  loans  of  the  State  of  Honduras  are  the 
following:  Loan  of  5%  of  1867,  of  10%  of  1867,  of  6  2/3%  of 
1869,  and  of  10%  of  1870 — the  three  last  ones  named  hereinafter 
"Railway  Loans." 

Whereas,  the  holders  of  Bonds  of  said  external  loans  and  the 
"Corporation  and  Committee  as  their  representatives,  respectively, 
are  desirous  to  arrive  at  an  arrangement  in  respect  to  the  Claims 
with  the  Government  of  said  State  of  Honduras,  and  they  have  been 
^and  now  are  negotiating  with  said  Government  with  the  end  of 
•obtaining  this  object. 

Whereas,  the  Bonds  of  the  Railway  Loans  are  especially 
guaranteed  by  mortgage  or  charge  on  said  Railway  and  domains 
and  forests  of  the  State  and  other  properties. 

Whereas,  the  subject  of  this  agreement  has  been  under  the 
study  of  the  Committee,  which  gave  its  approval  .by  resolution 
passed  on  the  20th  day  of  November  of  1902. 

Therefore,  by  the  consideration  hereafter  consigned  it  has 
been  agreed  between  the  Syndicate  on  one  part  and  the  Corporation 
•on  the  other  part,  to  the  following: 


70 

1.  The  Corporation  will  use  its  best  efforts  to  carry  through 
an  arrangement  about  the  foreign  loans  and  for  an  agreement  with 
the  Government  on  this  subject,  and  for  the  approval  by  Congress 
of  the  State  of  Honduras,  of  a  law  for  the  settlement  of  the  ex- 
ternal debt  of  the  State,  on  the  terms  consigned  in  the  project  of  law 
contained  in  the  draft  attached,  with  such  modifications  (if  any), 
as  the  Syndicate  and  the  Corporation  may  mutually  approve;  and 
the  Syndicate  (as  far  as  in  its  discretion  may  reasonably  do  and 
when  the  Corporation  may  request  from  it),  will  co-operate  with 
the  Corporation  in  its  efforts  to  obtain  the  aforesaid  object. 

'I.  The  Syndicate  will  use  its  best  efforts  for  obtaining  from 
the  Government  of  Honduras,  and  in  case  the  Government  deemed 
proof  of  the  ability  or  capacity  of  the  Syndicate,  or  its  Agents,  or 
cessionaires  necessary  to  complete  said  Railroad  within  a  reason- 
able time,  and  will  use  too  its  best  efforts  to  make  or  carry  through 
a  definitive  and  binding  agreement  with  the  Government  (under 
the  condition  of  the  approval  of  the  law  referred  to  in  the  Clause 
1,  and  the  approval  of  the  Resolution  of  the  Bondholders  in  a 
General  Meeting,  and  mentioned  and  prescribed  in  the  next  Clause 
3,  which  must  be  held  simultaneously  and  immediately  before  or 
soon  after  the  preceding  clause),  for  the  completion  of  said  Rail- 
way within  a  reasonable  time  and  on  account  of  the  Syndicate,  its 
Agents  or  cessionaires;  and  the  Corporation  (as  far  as  it  is 
reasonably  able  in  its  discretion,  if  the  Syndicate  demands  it),  will 
co-operate  with  the  Syndicate  in  its  efforts  to  make  or  carry 
through  the  proposed  arrangement. 

\Vhen  the  law  mentioned  in  Clause  No.  1  be  approved,  and 
the  arrangements  mentioned  in  Clause  No.  2,  for  the  completion  of 
said  Railway  lie  terminated  and  delivered  to  the  Syndicate,  and 
tin-  Syndicate  has  put  in  the  hands  of  the  Corporation  tin-  security 
or  «rnaninty  mentioned  in  the  next  following  Clause  No.  4,  then  the 
Corporation  shall  convene,  as  soon  as  possihle.  a  General  Meeting 
ndholders  of  the  Foreign  Loans,  in  conformity  with  its  rules 
and  reiMdations.  which  will  he  held  in  London,  with  the  object  of 
approMni:  a  n>o hit  ion  accepting  tin-  arrangement  provided  by  said 

.ind   hy  li  Mieiit  :  and   shall   also  invite  the  Bondholders 

to   depo-h    their    I'.onds    with    the    Corporation    for   the    purpose   of 
ri^  out   -aid  arrangement  :  and   the  Corporation  and   the  Com- 
mittee -hall   iveommciid  and  employ  their  best  efforts  to  obtain  its 

appro 


71 

4.  When  the  law  mentioned  in  Clause  1  be  approved,  and  the 
arrangement  mentioned  in  Clause  2   for  the  completion  of  said 
Railway  be  terminated,  and  before  the  meeting  mentioned  in  Clause 
3  takes  place,  it  is  agreed  that  the  Syndicate  will  deliver  to  the 
Corporation  a  security  or  guaranty  by  a  Bank  or  firm  established 
in  London  to  the  satisfaction  of  the  Corporation   (subject  to  the 
approval  of  the  resolution  by  a  General  Meeting,  as  before  stated) 
to  make  the  following  payments  to  the  Corporation  on  account  of 
the  Bondholders  of  the  Railway  Loans  in  this  form : 

(1)  The  sum  of  £2.10  for  every  £100  Bonds  of  said 
Railway  Loans  to  be  deposited  with  the  Corpora- 
tion in  acceptance  of  said  settlement,  within  three 
calendar  months   after  the  issue  by  the   Corpora- 
tion of  public  notice  inviting  such  deposit. 

(2)  The  sum  of  £2.  for  every  £100  Bonds  of  said  Rail- 
way Loans  deposited,  as  has  been  already  said,  after 
the  expiration  of  three  calendar  months,  and  before 
the   expiration   of   three   calendar   months,    of   the 
first  publication  of  said  notice. 

(3)  The  sum  of  £1.10  for  every  £100  Bonds  of  said 
Railway   Loans    to   be    deposited    as    hereinbefore 
stated,  at  the  expiration  of  six  calendar  months  and 
before  the  expiration  of  one  year  since  the  publica- 
tion of  said  notice. 

5.  With  the  resolution  of  the  Bondholders  in  General  Meet- 
ing aforementioned  and  established  in  Clause  3,  being  approved, 
all  the  rights  of  the  Bondholders  of  the  Railway  Loans  and  also 
the  first  mortgage  or  guarantee  given  for  the  said  Railway  Bonds 
or  by  said  law  to  and  upon  said  properties  of  the  Railway  and  any 
other  properties,  are  to  be  transferred  absolutely  to  the  Syndicate 
as  its  own  property,  released  from  all  claims  by  or  from  the  Bond- 
holders, and  the  Syndicate  will  be  authorized  to  take  possession  of 
said  Railway  and  properties  accordingly,  and  the  Corporation  will 
withdraw  its  claim  in  behalf  of  the  Bondholders,  and  at  any  time 
after  at  the  request  of  the  Syndicate,  after  the  approval  of  said 
resolution,    will    deliver    to  the    Syndicate    proof    sufficient    and 
adequate  .duly  authorized)   of  the  approval  of  said  resolution,  as 
has  been  stated  and  mentioned  at  and  established  in  Clause  10,  of 
the  Project  of  Law  consigned  in  the  minute  attached  with  the- 


72 

certificates  and  copies  duly  drawn  of  said  resolution,  and  the  rules 
and  regulations  of  the  Corporation  of  Foreign  Bondholders,  show- 
ing that  said  resolution  has  been  duly  approved  and  in  conformity 
with  them. 

6.  If  this  agreement  does  not  become  effective  on  or  before 
the  30th  day  of  June  of  1903 — or  at  least  on  that  date —  one  of 
both  parties  may,  by  notice  in  writing  to  the  other,  and  sent  by 
mail  to  their  respective  offices  in  London  and  New  York,  terminate 
this  agreement  and  by  that  fact  would  be  ended,  and  the  rights  of 
the  Bondholders  will  remain  unaffected  and  in  full  vigor  as  if  this 
agreement  was  never  celebrated.  Taking  into  consideration  always 
that  if  this  agreement  is  not  made  effective  on  or  before  the  30th 
day  of  June  of  1903,  due  directly  or  indirectly  to  War,  Revolution, 
or  any  circumstance  which  may  be  considered  as  "force  m&jor" 
then  the  period  during  which  the  same  has  not  been  terminated 
under  the  option  and  benefit  of  what  it  contains  it  will  be  con- 
sidered extended  for  such  time  as  shall  correspond  with  the  time 
of  the  continuation  of  the  circumstances  which  had  interfered  in 
this  agreement  not  being  effected;  such  period  and  the  question  of 
efficiency  in  case  of  dispute  between  the  Corporation  and  the  Syndi- 
cate will  be  decided  by  Arbitration  in  England,  under  the  provi- 
sions of  the  Arbitration  Act  of  1889. 

(Signed)     AVEBURY, 
President  of  the  Corporation  and  the  Committee. 

(Signed)     ALBERT  E.  TURNKK. 

Agent  for  the  Squier  Syndicate. 


Authenticated  by  .hunt's  P.  Cooper,  Secretary  of  the  Corpora- 
tion of  Foreign  Bondholders. 

Approved    by   tin-   S<|iiier   Syndicate.    New    York,   on    the    K>th 
of  December.  1!K)2. 

.Tied)    D.  BROOKS  CAKNSKY.  Secretary. 
1'1,'ANK    SoriKlf.    President. 


\\IT\I 

Signed)     MKi:vi\  s.  NKAU.  JR., 

Neu    York  Count  \.   N     Y. 


Official  Record, 
1903. 


75 

Official  Record,  1903. 

PROJECT  "SQUIEK  SYNDICATE." 
ARCHIVES  OF  FOMENTO. 

ADMINISTRATION  OF  PRESIDENT  MANUEL  BONILLA. 

1903. 


No.  1.     "A"— April  25th— W.  J.  Bain,  Agent  of  the  Bondholders 
to  the  President  Manuel  Bonilla. 

"I  have  the  honor  to  enclose  to  Your  Excellency  the  Project 
of  the  Law,  traced  by  the  Bondholders,  for  the  extinction  of  the 
Exterior  Debt  of  the  Republic,  including-  the  Federal  Debt  guaran- 
teed by  the  products  of  the  Customs  of  Amapala." 

"Furthermore,  said  arrangement  is  combined  with  an  agree- 
ment between  'The  Squier  Syndicate'  and  the  Corporation  of 
Foreign  Bondholders,  by  the  terms  of  which  they  pay  £2.10.  in 
cash  for  each  £100  of  Bonds  and  promise  to  complete  the  Rail- 
way." 

"This  Troject  for  a  Law7  has  been  approved  by  the  Govern- 
ment of  H.  B.  M.,  and  as  the  basis  is  so  favorable  for  the  Govern- 
ment of  Honduras,  no  doubt  that  it  will  be  well  supported  by 
Your  Excellency." 

I  am,  Your  Excellency's  etc.,  etc. 

No.  1  "B."  Project  for  a  Law  for  the  arrangement  of  the  Ex- 
terior Loans  that  the  Congress  of  the  State  of  Honduras  shall 
emit.  Articles  1  to  10. 

No.  2.  Project  of  the  arrangement  of  the  Foreign  of  Hondu- 
Honduras  and  construction  of  the  Inter-Oceanic  Railway,  as.  sub- 
mitted by  Mr.  W.  J.  Bain,  the  1st  of  May,  1903. 

Explanation  of  the  generous  conditions,  with  a  Table  demon- 
strating the  cancellation  of  the  Debt  in  27  years. 

No.  3.     Agreement  made  the  4th  of  December  of  1902,  be- 


re 

tween  the  "Squier  Syndicate''  of  New  York  and  the  Corporation  of 
Foreign  Bondholders  of  London. 
Preamble  and  6  Articles. 

(Signed)   AVEBTJRY, 

President  of  the  Corporation  and 
Chairman  of  the  Committee. 

BY    SQUIER   SYNDICATE. 

Albert  Turner,  Agent. 

"     FRANK  SQUIER,  President. 

"     D.  BROOKS  GARXSEY,  Secretary. 

Witnesses  to  the  signatures  of  the  Rt:  Hon:  John  Baron 
Avobury  and  Albert  Turner. 

(Signed)         JAMES  P.  COOPER, 
Secy :  of  the  Corp :  of  Foreign  Bondholders. 

Witnesses  to  the  signatures  of  Frank  Squier  and  D.  Brooks 
Garnsey,  16th  December,  1902. 

(Signed)     MERVIX  S.  NEAR,  JR., 

Xew  York  County.  \.  Y. 

No.  I.  Agreement  of  the  4th  of  December,  1902,  between  the 
"Squier  Syndicate"  of  Xew  York,  and  the  Corporation  of  the 
Holders  of  Bonds,  in  English.  Also  the  Project  of  Law. 

No.  5.    Agreement  proposed  between  the  Government  of  Hon- 

«luras.  in  ('.  A.,  and  the  "Squier  Syndicate"  they  acting  under  the 

provisions  agreement  dated  in  London,  December  4th,  190£,  with 

<  orporation  of   Bondholders,  simultaneously,  as  supplementary 

•  •inenN.     Arts.  1/22. 

No.  ('».  Communication  of  Solomon  Onlnncx,  (Jeneral  Min- 
i-t«T  !'•  \\'.  .1.  Bain,  over  his  powers.  May  .">,  1(.M):;. 

No.  *.  ( 'oninninicat  ion  of  Solomon  Ordonex,  Minister  (len- 
<-ral  to  \V.  .1.  Bain.  May  I'.Mli. 

Mr.   Bain  to  the   Min.  (i.-neral.   May    1  1.   I'M):;. 
No.      9,      Mr.   Bam  to  ilie  Min.  (Irm-ral.  Mav   1!'.   l'.>»>:;. 
\o.     M>.       'I'll.'    (ii-in-nil     Minister    t«    the     National     ( 'oM'_riv». 
uith    all    the    document-.    May    g&,    I'.M):;. 

I  1.       \\  .  .1.    Itaiii   to    IVeHdn.t    lloiiilla,    Mav   86,    I'.Hi:;. 

l.'.-ohitioti    of    National    Cmi^ress    that     returns    the 
' 


i  i 

Xo.  13.  W.  J.  Bain  to  Sotero  Barahona  (personal),  June  \2r 
1903. 

Xo.  14.  W.  J.  Bain  to  Mr.  President,  June  2,  1903,  with 
copy  of  a  letter  to  Mr.  Barahona. 

Xo.  15.  W.  J.  Bain  and  E.  A.  Turner  to  Mr.  President,  June 
(>,  1903,  refers  to  an  omission  in  the  translation  of  the  Project  of 
Law,  Art.  2. 

Xo.  16.  Powers  from  W.  J.  Bain,  as  representative  of  the 
Bonholders.,  on  the  5th  February,  1903. 


United  States'  Protest, 
1903. 


81 
UNITED  STATES  PEOTEST. 

TELEGRAM. 

Guatemala,  June  3,  1903. 
Minister  of  Foreign  Kelations,  Tegucigalpa: 

My  Government  disproves  the  terms  of  the  proposal  of  the 
Squier  Syndicate. 

I  am  opposed  that  an  American  corporation  shall  be  the 
medium  of  celebrating  an  arrangement  between  Honduras  and  the 
Foreign  Bondholders,  with  respect  to  a  debt  relative  to  which  i& 
alleged  grave  frauds,  illegalities  and  injustice. 

I  beg  the  honor  of  a  reply  by  telegraph  to  this  message. 

(Signed)         LESLIE  COMBES, 
Minister  of  the  United  States. 


Official  Report 

to 

Congress, 
1904. 


85 


OFFICIAL  REPORT   TO   CONGRESS. 

Extract  of  memorial  presented  to  the  National  Congress  by 
the  Secretary  of  State  in  the  Department  of  Improvements  and 
Public  Works  for  the  years  1902  and  1903. 

Under  the  date  of  April  25th,  Mr.  W.  J.  Bain,  as  agent  of  the 
Bondholders  of  the  Foreign  Debt  of  Honduras,  presented  to  the 
Government  a  "Project  of  Law"  devised  by  the  bondholders,  pro- 
viding for  the  extinction  of  the  debt  and  for  the  holders  of  the 
bonded  debt  to  construct  the  railroad. 

Should  the  arrangement  be  accepted,  they  would  guarantee 
themselves  out  of  the  proceeds  of  the  customs  of  Amapala, 

Regarding  this  project,  the  communication  which  crossed 
between  the  Minister  of  Honduras  and  Mr.  Bain  and  the  rest  of 
the  antecedents  in  the  case,  an  account  is  given  to  Congress  May 
23rd  and  28th  of  same  year,  who  saw  fit  to  turn  it  over  to  the 
Executive,  to  whom  it  pertains  at  present,  to  treat  regarding  the 
proposition,  with  the  parties  interested,  and  submit  the  agreement 
at  convenience  to  your  knowledge,  conformable  to  the  requirements 
-of  the  Political  Constitution  of  Honduras. 

In  view  of  this  resolution  the"  Government,  in  order  to  proceed 
with  the  greatest  thoroughness,  nominated  on  June  9th,  two  of 
the  ablest  Lawyers  of  the  Country,  Don.  P.  J.  Bustillo  and  Don. 
Angel  Ugarte,  in  order  that,  in  representation  of  the  Government, 
conferring  conjointly  with  the  representative  of  the  Bondholders  of 
the  Foreign  Debt  of  Honduras  and  with  those  of  any  other  Com- 
pany or  individuals,  who  hold  any  interest  in  the  proposition,  to 
arrange  the  said  Debt  and  the  construction  of  the  Inter-Oceanic 
Railway  across  the  territory  of  the  Republic  and  also  leasing  the 
section  of  same  already  constructed;  giving  equally  ample  powers 
to  Messrs.  Bustillo  and  Ugarte,  by  which — if  they  arrive  at  a 
satisfactory  conclusion — they  may  from  the  Contracts  which  they 
judge  necessary,  respecting  the  points  previously  explained,  giving 
account  of  those  to  the  Government,  by  which  they  arrive  at  the 
resolution  which  they  believe  convenient,  and  authorizing  said 
representatives  that  they  can  propose  a  Secretary  and  two  clerks, 


86 

which  can  be  nominated  for  the  Office,  and  which  they  can  use, 
in  the  fulfilling  of  their  Commission,  and  of  all  the  documents 
which  they  can  obtain  in  the  National  Archives  and  Public  Offices, 
concerning  the  matter  with  which  they  are  charged. 

The  Conferences  and  other  acts  it  will  be  the  duty  of  Messrs. 
Bustillo  and  Ugarte  to  put  in  a  special  record. 

On  June  15th,  the  representative  of  the  Government  held  the 
first  conference  with  Mr.  W.  J.  Bain;  the  latter  being  the  repre- 
sentative of  the  Bondholders  of  the  Foreign  Debt  of  Honduras, 
and  after  three  more  days,  17,  20,  22  of  the  same  month,  in 
which  they  met  to  discuss  the  Powers  of  Attorney  of  Mr.  Bain. 
The  representatives  of  Honduras  observed  that  the  legal  conditions 
necessary  to  constitute  him  absolutely  the  representative  of  the 
Bondholders : 

(1)  Because,  being  the  corporation  of  Bondholders  of  Lon- 
don,— an  anonymous  society, — it  is  indispensable  that  Mr.   Bain 
fills  the  requirements  exacted  by  our  laws,  in  order  that  he  may 
treat  in  the  name  of  the  persons  who  have  conferred  upon  him  the 
power  to  compromise  them. 

(2)  Because,  speaking  in   the  name   of  the   Committee   of 
Foreign   Bondholders,   it  is   indispensable  to  produce  the   act  in 
which  the  Bondholders,  in  meeting  convened  for  that  purpose,  did 
constitute  the  Commission,  of  which  he  speaks,  and  the  powers 
which  they  conferred  on  him. 

Mr.  Bain  answering  the  observations  that  were  made,  stated 
that  his  powers  gave  him  the  authorization  of  the  Corporation  of 
Bondholders,  acting  conjointly  with  the  Committee  of  Bondholders 
of  the  Foreign  Bonds  of  Honduras,  to  represent  the  Corporation, 
the  said  Committee,  and  the  holders  of  Honduras  Bonds;  and  to 
act  in  favor  of  each  of  them  respectively,  and  in  their  name  nego- 
tiate with  the  Government  of  Honduras  an  arrangement  over  the 

•in-ill  printed  and  added  to  the  written  Power  of  Attorney, 
jind  upon  the  "Project  of  a  Law,"  which  in  this  agreement  refer- 
ence is  made;  and,  in  Lreneral,  to  negotiate  with  the  Government 
of  Honduras  an  arrangement  over  the  Foreign  Debt  of  the  Re- 
public, ohli^atin'j  liic  corporation  referred  to,  to  ratify  everything 
thai  w;i-  le.Lral  in  respect  to  it:  llial  -aid  Power  has  ant hori/cd  him 

iifonniiy  with   the  laws  and   n-L-ulat  ions  of  the  corporations, 


87 

as  indicated  in  the  final  paragraph,,  and  indispensably  requisite* 
because  it  was  signed  by  the  President  of  the  Corporation,  which 
gives  it  its  Official  character,  and  which  already  owes  its  existence 
to  an  act  of  Parliament,  and  the  signature  of  the  President  is 
unquestionable,  because  the  document  is  authentic. 

The  Power  must  be  examined  for  the  terms  in  which  it  was 
conferred,  not  singly,  but  in  relation  to  the  printed  Agreement, 
which  is  attached,  made  in  London,  December  4th,  1902,  and  in- 
flation with  the  "Project  of  Law/'  to  which  this  agreement  refers, 
which  is  also  attached;  which  in  Article  5,  of  this  "Project  of 
Law"  declare,  that  the  amortization  of  the  Bonds  will  be  effected 
conformably  to  a  plan  which  the  corporation  outlined,  and  which 
will  be  approved  by  a  general  meeting  of  Bondholders,  convoked 
by  Corporation  for  verification  in  London,  that  Article  10  of  said 
"Project77  establishes  that  those  arrangements  which  are  made  will 
not  be  effective,  and  will  not  obligate  the  State  and  the  Bondholders 
until  they  may  be  accepted  by  Eesolution  of  a  General  Meeting  of 
said  Bondholders,  which  the  Corporation  will  convoke  conformable 
to  the  laws  and  regulations,  which  binds  it,  and  will  take  place  in 
London;  which  established -that  Officially  that  the  Corporation  of 
Bondholders  represents  by  means  of  its  President,  the  holders  of 
Bonds,  and  makes  clear  that  the  same  President  of  the  Corpora- 
tion is  the  President  of  the  Committee  of  Honduras,  the  representa- 
tion conferred  by  the  Power  cited,  is  full,  notwithstanding  what  it 
does  in  the  exercise  of  this  power  upon  the  "Agreement"  and  "Pro- 
ject" presented,  holds  that  it  be  approved  by  the  Bondholders  in 
General  Meeting;  that  the  Corporation  of  Bondholders  and  the 
Committee  of  Honduras  has  not  been  organized  conformably  to  the 
laws  of  Honduras  regards  anonymous  societies,  then  it  owes  its 
existence  to  English  Laws,  and  these  Laws  at  the  same  time  that 
they  protect  the  rights  of  the  claimants  will  be  the  safeguard  of 
the  rights  of  Honduras,  that  an  Official  Corporation  does  not  dare 
to  do  wrong ;  and  that  in  consequence,  hopes  that  holding  the  rep- 
resentation good,  true  and  perfect,  it  is  in  order  to  pass  to  the 
study  of  the  "agreement"  and  the  "project"*presented  to  the  Gov- 
ernment for  the  ensuing  results. 

The  representatives  of  Honduras  replied :  that  for  the  terms- 
of  the  Act  or  Decree  of  the  English  Parliament,  copy  of  which 
Mr.  Bain  presented,  the  Corporation  of  Bondholders  is  an  anony- 


88 

mous  society,  and  that  in  conformity  with  the  principles  of  Inter- 
national Law  and  tlu>  Legislation  in  force  in  Honduras,  its  repre- 
sentatives cannot  exercise  any  such  act  without  being  competently 
authorized  according  to  our  prescribed  laws;  that  it  only  required 
that  Mr.  Bain  complies  with  the  laws  of  Honduras,  so  that  he 
can  bind  his  constituents;  that  Mr.  Bain  has  not  produced  the  act 
in  which  it  is  made  clear  that  the  Corporation  of  Holders  of  Foreign 
Bonds  and  the  Committee  of  Bondholders  of  Foreign  Bonds  of 
Honduras  have  constituted  a  Committee;  that  which  is  not  demon- 
strated by  the  act,  by  which  the  President  and  Vice-President  of 
the  Corporation  of  Holders  of  Foreign  Bonds  may  be  the  same  as 
the  Committee  of  the  Holders  of  Bonds  of  the  Foreign  Debt  of 
Honduras,  apparently  the  one  and  the  other  are  distinct  entries. 

For  these  reasons,  Messrs.  Bustillo  and  Ugarte  declares  they 
cannot  treat  with  Mr.  Bain  regarding  any  business  referring  to 
the  Foreign  Debt  of  Honduras. 

Mr.  Bain  protested  and  the  Representatives  of  the  Government 
did  the  same. 

Mr.  Ugarte  went  to  the  United  States  and  Europe,  commis- 
sioned by  the  Government,  for  which  reason  Mr.  Bustillo  continued 
alone  studying  the  matters  concerning  our  Foreign  Debt. 

Tegucigalpa,  January  7,  1904. 

(Signed)     ALBERTO  MEMBREXO. 


The  Garden's  Agreement, 
1909. 


91 

PROPOSAL  OF  BRITISH  MINISTER  GARDEN, 

Tegucigalpa,   March   10,   1909. 

General  Miguel  Oqueli  Bustillo, 

Minister  of  Finance  and  Public  Credit,  City. 

My  Dear  Friend: — As  I  promised  to  His  Excellency,  the 
President  of  the  Republic,  and  to  you  last  night,  I  have  the1 
pleasure  to  herein  inclose  the  data  which  I  have  used  to  form 
the  project  for  the  settlement  of  the  debt,  which  I  have  had 
the  honor  to  submit  to  the  consideration  of  the  Government  of 
Honduras. 

The  essential  part  of  the  project,  as  you  know,  consists  in 
the  payment  by  Honduras  of  £1,600,000  in  forty  yearly  install- 
ments of  £40,000  each. 

To  carry  into  effect  these  payments  the  Government  assigns 
to  the  Council  of  Foreign  Bondholders  the  net  proceeds  (usu- 
fructo)  of  the  railway  and  wharf,  besides  an  additional  impost 
of  15  per  cent  over  the  import  duties,  which  will  be  payable 
by  means  of  special  certificates,  which  shall  be  delivered  to  the 
Council  for  sale  in  the  several  ports  of  the  Republic. 

Complying  with  these  conditions,  the  Government  has  no 
other  responsibility — if  for  any  eventuality  the  collections  from 
the  aforesaid  revenues  in  one  year  do  not  produce  enough  to  com- 
plete the  payment  of  said  annuity  of  £40,000.  In  such  case  the 
deficit  shall  be  covered  with  jthe  surplus  of  the  following  year  or 
years. 

Herewith  I  inclose  some  tables  which  show  the  reasons  that 
I  have  to  believe  that  the  said  revenues  not  only  will  give  the 
amount  needed  to  cover  the  forty  installments  of  £40,000,  but  will 
leave  a  big  surplus. 

The  table  No.  10  shows  the  increase  obtained  in  three  of  the 
most  important  railways  in  Mexico,  which  proves  what  can  be  ex- 
pected in  Honduras-. 

The  table  No.  11  shows  the  relation  between  the  operating7 
expenses  to  the  gross  earnings  of  thirteen  railways  in  several 
countries  of  Latin  America,  which  give  an  average  of  60%. 

The  table  No.  13  shows  the  products  which  may  be  expected' 
of  the  existing  railways,  starting  from  the  basis  of  actual  earn- 
nigs,  to,  say,  £40,000  per  annum. 


92 

In  the  lirst  of  these  tables  the  cost  of  operation  is  estimated 
in  <;5%,  and  in  the  second  70%.  In  both  is  subtracted  the  sei'- 
vice  of  interest  and  sinking  fund  of  an  issue  of  £80,000  of  rail- 
way reronstruction  bonds. 

It  has  been   estimated   an   annual    increase  of  the  gross  earn- 

»f  the   railway  of    10',    in  each  one  of  the  next  nine  years. 

and  5%  on  the  succeeding  years.     It  may  be  noticed  that  this  in- 

crease   per   centum    is    calculated    upon    the   products   of   the   first 

year   instead   of  every   preceding  year,   which    is   more  favorable. 

Table  No.  1!)  show*  the  products  of  the  wharf  (its  increase 
being  calculated  on  the  same  basis),  taken  as  a  whole  with  those 
of  the  railroad;  calling  vour  attention  to  the  fact  that  the  last 
ones  are  estimated  upon  the  basis  of  a  cost  of  operating  of  r..v  ;- 
of  the  gross  earnings. 

To  figure  out  the  difference  in  case  the  expenses  of  operation 
would  be  70%  instead  of  65%,  one  only  has  to  reduce  the  figures 
of  the  seventh  portion. 

Table  No.  !)  shows  the  increase  of  the  import  duties  in  the 
la-t  ten  years,  which  gives  an  average  of  5.51%. 

In  in  those  years  of  war  and  revolutions  there  has  been  such 
an  increase,  surely  it  is  not  Improbable  to  expect  a  continuance 
in  the  future,  even  not  taking  into  consideration  the  necessary 
n  Milt  of  the  rehabilitation  of  Xational  credit  abroad. 

This  table  shows,  beside-,  what,  can  be  expected  from  the  1.")% 
additional  which  it  is  proposed  to  establish  on  said  customs 


The  first    column  of  table  •*()  shows  the  total  expected  prod- 

of  ra'lroad  and  wharf:  the  second  one  the  !.">%  additional 
<":f  the  import  duties;  and  the  third  one  the  surplus  in  fa\or  of 
the  (iovermnent,  sul  t  ract  ing  the  amount  of  the  annuities  of 

"i<>.  \\hicb   will   be  applied   to  the  amort  i/at  ion   of  the  debt. 

I    avail    of  tin-  «»pp«u  t  unit  v   to   repeat    to   vou   once   more   vour 

Wend,  v\ 

3  -ned)     UONKL  GARDEN, 


93 

BASIS  WHICH  THE  GOVERNMENT  OF  HONDURAS  AC- 
CEPTED FOR  THE  SETTLEMENT  OF  ITS  FOREIGN 
DEBT  IN  MARCH,  1909. 

Tegucigalpa,  March  11,  1909. 

Article  1.  It  is  taken  as  a  basis  of  settlement  the  sum  of 
£452,000,  as  representative  value  of  the  external  debt  originated 
from  the  four  loans  of  1867,  1869  and  1870,  acknowledging  on 
that  amount  of  the  interest  of  8.86%  during  the  time  of  its  amor- 
tization, which  is  here  fixed  in  forty  years  and  installments  of 
£40,000. 

Article  2.  The  said  annuities  shall  be  applied  by  drawings 
or  by  purchases  to  highest  bidder  to  the  amortization  of  the  bonds, 
in  the  following  proportion: 

1st  —Drawing  of  £1,000,000  at  20% £200,000 

2nd— Drawing  of     1,000,000  at  25% 250,000 

3rd— Drawing  of     1,000,000  at  30% 300,000 

4th— Drawing  of     1,000,000  at  35% 350,000' 

5th— Drawing  of     1,398,570  at  40% .........  559,428 


£5,398,570  £1,659,428 

Article  3.  The  holders  of  bonds  shall  present  their  titles 
to  the  Council  of  Bondholders  in  London  within  twos  years,  to- 
be  stamped  in  accordance  with  the  present  stipulations  in  order 
to  enter  to  the  amortization. 

Article  4.  For  the  payment  of  the  forty  annuities  of  £40,000 
referred  to: 

(a)  The  Government  cedes  and  assigns  to  the  bondholders 
the   usufruct    (net    earnings)    of    the    Interoceanic    Railway    and 
Wharf  of  Puerto  Cortes  for  forty  years,  or  until  the  debt  is  extin- 
guished, if  this  can  be  effected  before,    the    bondholders    taking; 
charge  of  its  administration  and  opreation. 

(b)  The  Government  will  issue  bonds  of  first  mortgage  orr 
the  railway  for  the  amount  of  £100,000  to  provide  funds  which 
will   be   applied   to  the   necessary   improvements,   the   Council   of 
Bondholders  being  obligated  to  contract  their  sales  to  best  possible 
rate.    The  service  of  interest  and  sinking  fund  of  these  bonds  shall 
be  preferential  charge  on  the  net  products  of  the  railway. 


94 

<(c)  The  Government  will  assign  also  for  the  payment  of 
the  .annuities  referred  to  the  proceeds  of  an  additional  impost  of 
15%  on  the  import  duties  which  shall  be  established  to  this  effect. 

This  import  shall  be  collected  specially  and  exclusively  by 
means  of  customs  certificates,  which  shall  be  issued  at  the  time 
of  signing  the  contract  of  the  settlement  of  the  debt,  depositing 
them  in  the  hands  of  the?  trustees,  and  delivering  them  to  the 
agents  of  the  bondholders  for  their  sale  to  the  merchants  accord- 
Ing  as  they  are  needed. 

Article  5.  The  products  of  the  revenues  referred  to  in  the 
preceding  clause  shall  be  applied  by  the  Council  of  Bondholders, 
in  the  first  place,  to  the  payment  of  the  said  forty  annuities  of 
£4.0,000,  depositing  the  surplus,  if  any  in  any  year,  in  a  bank  to 
the  order  of  the  Government,  but  under  the  precise  condition  that 
It  must  be  applied  exclusively  for  the  payment  of  the  contracts 
that  the  Government  makes  for  construction  of  railways. 

Article  6.  If  for  any  eventuality  the  products  of  the  reve- 
nues of  which  mention  is  made  in  Article  4  would  not  suffice  in 
one  year  to  complete  the  payment  of  the  annuity  of  £40,000,  the 
deficit  will  be  completed  with  the  surplus  of  the  next  following 
year,  or  years,  without  bearing  interest. 

(Signed)     LIONEL  GARDEN". 


LETTER  OF  THE  HONDURAS  MINISTER  OF  FINANCE 
TO   MINISTER  GARDEN. 

Tegucigalpa,  March  11,  1909. 
Excellency  Lionel  Garden,  Minister  of  H.  B.  M.,  City. 

Dear  Sir  and  Friend: — Bein<:  agreed  upon  the  basis  of  a  set- 
tlement of  the  external  deht,  and  though  the  President  lias  exact 
idea  of  the  important  of  tin-  re-establishment  of  the  credit  of  the 
Republic  by  the  payment  of  her  debt.  I  am  compelled  to  man- 
ifest to  you  thai  HUM  not  he  overlooked  the  heavy  burden  which 
will  he  imposed  upon  the  nation  with  the  annual  payment  of 
I'M). (Hid  win,-},  in  the  arlual  state  of  poverty  would  he  \erv  onerous 
io  the  Honduras  worker. 


95 

Taking  into  consideration  this  circumstance,  the  -  President 
believing  that  he  cannot  justify  before  the  opinion  of  his  fellow- 
citizens  the  delivery  of  the  railway  and  wharf,  besides  the  over- 
charge of  15%  on  the  customs  duties,,  without  receiving  in  com- 
pensation other  direct  and  immediate  benefit  besides  the  rehabilita- 
tion of  the  national  credit. 

What  other  benefits  could  be  offered  to  the  Honduran  people 
in  order  that  they  may  receive  with  delight  the  agreement  of  the 
settlement  of  the  debt?  No  other  is  so  agreeable  to  the  country 
than  the  immediate  reconstruction  of  the  first  section  of  the  Inter- 
•oceanic  Kailway,  and  the  construction  of  the  second  section,  be- 
sides the  construction  of  branches  to  exploit  the  fertile  lands  on  the 
€hamelieon  and  Ullua  Bivers,  as  the  cultivation  of  bananas  con- 
stitutes the  main  industry  of  the  people  on  the  north  coast,  and  this 
would  enable  them  to  carry  easily  the  burden  imposed  on  them. 

To  your  Excellency  it  is  a  matter  of  easy  understanding  the 
high  reason  of  public  convenience  of  these  remarks,  and  you  may 
•calculate  their  transcendency.  Therefore,  if  the  Government  agrees 
that  the  country  make  sacrifices  for  the  rehabilitation  of  her  credit, 
also  has  a  right  to  expect,  and  even  to  demand,  that  the  creditors 
contribute  to  help  Honduras  to  redeem  her  debt,  promoting  the 
development  of  her  resources  and  population. 

His  Excellency  the  President  believes  that  besides  the  proposed 
basis  of  settlement  must  be  stipulated  the  obligation  of  the  creditors 
to  improve  and  extend  the  existing  railroad,  and  build  branches, 
wi'th  the  first  mortgage,  as  with  its  delivery,  the  rights  of  the  bond- 
holders are  guaranteed  (secured,  protected). 

The  Government  would  feel  sorry  that  the  creditors  do  not 
understand  the  importance  of  these  remarks,  because  a  failure  of 
this  arrangement  before  public  opinion,  and  consequently  before 
the  National  Congress,  would  redound  in  detriment  of  the  Govern- 
ment and  the  creditors  themselves,  and  that  would  retard  indefi- 
nitely any  understanding. 

By  all  above  stated,  and  in  order  to  assure  to  the  negotiations 
a  final  success,  I  consider  necessary  to  let  the  bondholders  under- 
stand that  the  Government  will  demand,  besides  the  obligation  of 
reconstructing  the  road  and  improving  its  equipment,  to  continue 
the  line  to  the  south  and  build  branches,  investing  £200,000  which 
may  be  obtained  with  the  first  mortgage  of  the  railway. 


96 

Furthermore:  the  Government  understands  that  at  the  time 
of  closing  the  settlement  of  the  debt,  the  Government  and  the 
bondholders  in  common  accord  will  give  the  administration  of 
the  railway  and  wharf  to  a  person  or  company  who -shall  accept 
the  obligations  and  rights  which  shall  be  stipulated  in  the  contract 
to  be  celebrated  to  that  effect;  and  that  the  Government  and  the 
bondholders  will  appoint  an  interventor,  each.,  to  verify  the  accounts 
of  administration,,  and  supervise  the  collection  and  inversion  of  the 
ea ruings  of  railroad  and  wTharf. 

Finally,  the  Government  believes  that  at  the  time  of  cele- 
brating the  contracts  will  be  stipulated  all  those  conditions  which 
will  fix  the  mutual  guarantees. 

With  my  best  distinguished  consideration,  it  is  a  pleasure  to- 
remain  your  friend, 

(Signed)     MIGUEL  0.  BUSTILLO. 


BKITISH  MINISTER  TO  PRESIDENT  DAVILA. 

N".  142  Cablegram. 

Guatemala,  25th  of  June,  1909. 

Received  in  Tegucigalpa  25th  June,  10:30  p.  m. 
To  His  Excellency  the  President  of  Honduras,  Tegucigalpa: 

By  instructions  received  from  my  Government  I  have  the 
honour  to  advise  your  Excellency  of  the  acceptation  on  the  part 
of  the  Council  of  Foreign  Bondholders  of  London  of  the  basis  of 
the  arrangement  of  the  foreign  debt  of  Honduras  proposed  by 
your  Excellency  the  llth  of  March  of  the  current  year. 

At  the  same  time  I  have  the  pleasure  of  •expressing  the  satis- 
faction  with  which  the  -Government  of  H.  B.  M.  has  seen  the  good 
disposition  and  eonciliatorv  spirit  displayed  by  the  Government 
of  \oiir  Kxeelleney  in  the  negotiations,  due  to  which  it  has  been 
made  possible  to  arrive  at  a  solution  so  satisfactory  and  honorahle 
for  Until  par; 

(Si-ned)      lilMTISH    MIMSTKi;. 
0,    K.    11  I. 


The  United  States'  Interference, 
1909. 


99 

MEMORANDUM  OF  MINISTER  BROWN. 

Under  instructions  from  my  Government,,  which  I  have  just 
received  by  telegraph,  I  have  the  honor  and  the  pleasure  to  in- 
form the  Government  of  Honduras  that  the  firm  of  J.  P.  Morgan 
&  Co.  has  informed  my,  Government  that  they  are  prepared  to 
agree  in  the  arrangement  of  the  foreign  debt  of  Honduras.,  the 
delivery  of  the  railway  and  wharf  of  Puerto  Cortes,  and  the  ad- 
vancement of  a  substantial  amount  for  internal  improvements 
which  may  be  necessary,  acquiring  new  bonds  which  must  be  duly 
secured. 

Messrs.  Morgan  &  Co.  have  notified  my  Government  that 
the  Council  of  Foreign  Bondholders  had  accepted  the  proposal  of 
Morgan  &  Co.,  who  now  have  control  of  the  British  and  American 
securities,  including  the  railway  and  wharf,  and  that  the  Council 
of  Foreign  Bondholders,  acting  in  behalf  of  the  holders  of  bonds, 
have  informed  the  British  Secretary  of  State  for  Foreign  Affairs 
of  the  foregoing,  and  that  the  Secretary  of  State  for  Foreign  Af- 
fairs having  cordially  approved  the  new  project,  has,  by  request 
of  the  Council  of  Bondholders,  given  notice  to  Minister  Garden 
of  the  change  in  the  situation. 

I  have  instructions  to  manifest  that  if  the  Government  o  (! 
Honduras  would  send  a  special  agent  to  the  United  States  with 
full  powers  to  negotiate  with  Morgan  &  Co.,  the  Government  of 
the  United  States  would  extend  to  him  all  facilities. 

I  beg  to  add  that  the  Government  of  the  United  States  feel 
itself  happy  to  see,  in  the  said  proposals,  the  prospect  of  a  good 
result  and  for  a  settlement  upon  a  favorable  basis  for  the  amorti- 
zation of  the  National  debt,  which  would  be  for  the  prosperity,, 
tranquility  and  National  strength  of  Honduras. 

(Signed)     PHILIP  BROWN. 
Tegucigalpa,  July  17,  1909. 


100 

BRITISH  MINISTER  GARDEN  TO  MINISTER  OF 
FOREIGN  RELATIONS,  HONDURAS. 

British  Legation, 
Guatemala,  July  31,  1909. 
Mr.  Minister: 

Under  instructions  from  H.  B.  M.  Government,  I  must  mani- 
fest to  Your  Excellency,  for  the  information  of  the  Government 
-of  Honduras,  that  the  Council  of  Foreign  Bondholders  feel  sorry 
that  circumstances  foreign  to  their  will  had  obliged  them  to  aban- 
don the  agreements  for  the  settlement  of  the  debt  to  which  they 
had  previously  consented. 

The  Government  of  Your  Excellency  is  therefore  relieved  of 
the  compromises  made  with  the  British  bondholders  and  is  free 
to  enter  into  new  arrangements. 

I  have  sent  to-day  instructions  by  telegraph  to  H.  B.  M. 
Consul  ad  interim  in  Tegucigalpa  to  notify  Your  Excellency  in 
the  sense  above  referred  to. 

I  avail  of  this  opportunity  to  renew  to  Your  Excellency  the 
protests  of  my  most  distinguished  consideration  and  esteem. 

(Signed)     LIONEL  GARDEN'. 
His  Excellency  Dr.  Don  Jose  Maria  Ochoa, 

} Finister  of  Foreign  Relations,  Tegucigalpa. 


Morgan's  Proposition, 
1909. 


103 


CIRCULAR  OF  THE  COUNCIL  OF  FOREIGN  BOND- 
HOLDERS. 


HONDURAS  EXTERNAL  DEBT. 

Holders  of  Bonds  of  the  Honduras  5%  Loan  (1867),  the 
Railway  Loan  of  1867,  the  6  2/3%  Railway  Loan  of  1869, 
and  the  10%  Railway  Loan  of  1870,  are  invited  to  forthwith  de- 
posit their  Bonds  with  the  Council  of  Foreign  Bondholders  against 
the  issue  of  negotiable  deposited  Securities  to  Messrs.  J.  S.  Morgan 
and  Company,  against  a  cash  payment  of  £15.  for  each  £100  of 
existing  Bonds  with  unpaid  coupons  attached,  provided  a  settle- 
ment of  the  Debts  of  Honduras  under  the  auspices  of  the  Govern- 
ment of  the  United  States  is  effected  by  the  4th  of  August,  1910. 

Lists  with  the  conditions  of  Deposits  can  be  obtained  on  ap- 
plication. 

(Signed)    JAMES  P.  COOPER,  Secretary. 
17,  Moor^ate  Street, 

London,  E.  C. 

5th  of  August,  1909. 


CONDITIONS  OF  DEPOSIT. 

(1)  The  Council  is  constituted  the  holder  for  the  time  being 
•of  the  deposited  Securities  and  is  invested  with  all  the  powers  of 
the  actual  owners  thereof,  and  is  authorized  to  deliver  the  deposited 
Securities  to  Messrs.*  J.  S.  Morgan  and  Company,  against  payment 
in  cash  of  the  sum  of  Fifteen  Pounds  (£15)  in  respect  of  each  One 
Hundred  Pounds  (£100)  Bond  and  unpaid  coupons  thereon,  if  and 
when  an  arrangement  satisfactory  to  Messrs.  J.  P.  Morgan  and 
'Company  is  concluded  between  the  United  States  of  America  and 
the  Republic  of  Honduras  for  the  settlement  of  the  Debt,  of  which 
the  deposited  Securities  form  part,  provided  that  such  payment  be 
made  on  or  before  the  4th  day  of  August,  1910. 

(2)  Should  payment  not  be  made  by  the  date  named,  the 
'Council,  in  accord  with  the  Committee  of  Holders  of  Honduras 
Bonds,  is  authorized  to  extend  the  above  period  or  to  negotiate 
.any  other  arrangement  and  to  act  generally  as  they  may  deem 


104 

expedient  in  the  interests  of  the  Certificate  Holders;  but  any  such 
extension  of  time  or  arrangement  shall  only  be  binding  on  all 
Depositors,  if,  and  when  ratified  by  resolution  of  a  General  Meeting 
of  the  Certificate  Holders  convened  by  the  Council  in  manner 
provided  by  its  Eules  and  Regulations,  the  Holders  of  Certificates 
issued  in  respect  of  Honduras  External  Bonds  of  all  classes  being 
convened  and  voting  together. 

(3)  No  Holders  of  Certificates  issued  in  respect  of  deposited 
Securities  shall  be  entitled  to  claim  delivery  of  such  Securities 
except  on  a  general  re-delivery  to  be  made  when  deemed  expedient 
by  the  Council  and  Bondholders'  Committee. 


THIRTY-SIXTH  ANNTAL  REPORT  OP  THE  COUNCIL  OF 

THE  CORPORATION  OF  FOREIGN  BONDHOLDERS. 

FOR  THE  YEAR  1909. 

EXTRACTS. 

General  Remarks  (page  13). 

In  the  case  of  Honduras,  a  quite  unexpected  development  has 
taken  place,  proposals  having  been  put  forward  by  Messrs.  J.  S'. 
an  and  Company  to  purchase  the  External  Bonds,  subject  to 
an  arrangement  being  arrived  at  between  the  United  State?  and 
Honduras  for  the  issue  of  a  new  loan,  and  the  collection  of  the 
revenues  under  the  supervision  of  the  United  States  Government. 


arafl  (  page  15). 

Karlv   in    IDO'.i   ;l   s<  heme  for  the  settlement  of  the   External 

Debt  wa-  submitted  hy  tin-  Council  lo  the  ({overnment  of  Honduras 

through    the   irood   ollir.-   ,,f    M  r.    I/mud    Cardcn.    II.    M/fi    Minister 

in  Central   Amerirji.     This  seheme  \vas  approved  by  the    President 

in   March,  hut    before  tb«-  necessary  -leps  could   he  taken  to  submit 

the    I'ondholdeix   tin-   Council   were   informed   that 

-!«•«!  ai-i-aii-riiinii   \vas  not    acceptable  to  the  I'nilcd   Stales 

iinn-iil.    as     it     did     not     pn>\  ide     I'oi-    the    settlement.    of    the 

«;m  Claims  againsl  Il'ihdnra-.     .\t  the  same  time  a  ne\\  pro- 

\\-.\-i   put    t'-.i-ward    by   Messrs.   ,1.    I*.    Mnrirnn   and    Co.   of    New 
York,  for  the  purchase  of   the    K\i.-nml    Debt,   subject  to   .erlain 


105 

conditions.  Negotiations  thereupon  took  place  between  the  Bond- 
holders7 Committee  and  Messrs.  J.  S.  Morgan  and  Company  of 
London,  and  after  careful  consideration  the  Committee  resolved  tx> 
recommend  the  Bondholders  to  deposit  their  securities  with  the 
Council  in  assent  to  the  following  offer :  That,  subject  to  a  satis- 
factory arrangement  being  arrived  at  between  the  Governments  of 
the  United  States  and  Honduras  within  a,  period  of  twelve  months,, 
and  provided  a  majority  of  the  securities  is  deposited  in  assent 
to  the  scheme,  Messrs.  J.  S.  Morgan  and  Company  undertake  to 
purchase  the  Bonds  at  the  rate  of  £15  in  cash  for  each  £100  of 
Bonds  of  the  four  outstanding  Loans  with  arrears  of  interest. 

On  the  5th  of  August  the  Council  issued  notices  inviting  the 
holders  to  deposit  their  Bonds  against  the  issue  of  Certificates, 
and  at  the  close  of  the  year  nearly  £2,000,000  of  Bonds  had  been 
so  exchanged.  On  the  22nd  December  an  official  quotation  on  the 
Stock  Exchange  of  the  Certificates  representing  negotiable  Bonds 
of  the  English  Eailway  Loans  of  1867  and  1870  was  obtained,  and 
the  Council  are  of  opinions  that  holders  who  have  not  yet  deposited 
their  securities  would  be  well  advised,  in  their  own  interests,  to 
do  so  without  delay.  It  is  true  that  the  terms  of  settlement  are 
disappointing,  but  the  Council  and  Committee  satisfied  themselves 
that  it  was  impossible  to  obtain  more,  and  a  small  sum  in  cash 
is  undoubtedly  equal  to  a  very  much  larger  amount  in  Honduraean 
promises.  As  the  projected  arrangement  has  the  active  support  of 
the  United  States  Government,  it  ought  to  stand  every  chance  of  a 
successful  conclusion,  and  according  to  the  most  recent  information1 
received,  the  negotiations  which  have  for  some  time  past  been 
proceeding  at  Washington,  between  the  Finance  Minister  of  Hon- 
duras and  the  State  Department,  have  made  satisfactory  progress. 
Moreover,  as  the  United  States  Government  has  intervened  to 
frustrate  the  consummation  of  the  agreement  of  March,  19097 
mentioned  above,  it  is  morally  bound  to  secure  the  success  of  the 
scheme  which,  in  accordance  with  its  own  wishes,  has  been  put 
forward  in  its  place.  The  arrangement  will,  it  is  presumed,  have 
to  receive  the  approval  of  the  United  States  Senate  and  the  Hon- 
duras Congress. 


Morgan  Asks  Extension  of  Time  for  His  Option  on  the 

Honduras  Bonds. 

1910. 


109 

"HONDUBAS  EXTEBNAL  DEBT/' 

Belay  in  settlement  explained — THE  QUESTION  ON  COMPENSATION". 
London  "Financial  Times/-'  July  27,  1910. 

A  general  meeting  of  the  holders  of  Deposit  Certificates  repre- 
senting Honduras  Government  Bonds,  convened  by  the  Council  of 
Foreign  Bondholders.,  was  held  yesterday  at  their  Office,  17  Moor- 
.gate  St.,  E.  C.  "for  the  purpose  of  considering  the  situation  and 
a  proposal  of  Messrs.  J.  P.  Morgan  and  Company  to  extend  the 
present  arrangement  for  a  further  period  of  six  months/' 

The  Hon.  Sir  Charles  W.  Fremantle,  K.  C.  B.,  Vice-President 
of  the  Council  presided. 

The  Secretary,  Mr.  James  P.  Cooper,  having  read  the  notice 
convening  the  meeting. 

The  Chairman  said :  Gentlemen : — I  am  sorry  to  say  that 
Lord  Avebury  is  prevented  by  illness  from  being  present  to-day. 
I  am  sure  we  all  regret  his  absence.  He  had  expected  until  the 
last  moment  to  be  able  to  come  up,  but  I  suppose  the  weather  had 
been  against  him  and  his  doctor  will  not  allow  him  to  come.  I 
have  received  the  following  letter  from  him,  which  he  desires  me 
to  read  to  you. 

Kingsgate  Castle,  Isle  of  Thanet,  July  23,  1910. 

"For  the  first  time  since  I  have  had  the  honor  of  being  Presi- 
dent of  the  Council  I  fear  that  I  shall  be  prevented  by  illness  from 
attending  a  meeting  of  the  bondholders,  though  I  will  come  up  at 
the  last  moment  if  I  can.  In  these  circumstances  I  have  prepared 
some  remarks  which  I  shall  be  glad  if  you  will  have  read  to  the 
meeting." 

"The  Bondholders'  Committee  is  to  meet  on  Tuesday,  previous 
to  the  general  meeting,  and  circumstances  may,  of  course,  alter,  but 
I  have  every  confidence  in  their  judgment,  and  have  little  doubt 
that  were  I  able  to  be  present  I  should  concur  with  them.  They 
have  given  great  care  and  attention  to  the  subject,  are  themselves 
largely  interested,  and  I  venture  to  hope  that  the  meeting  will 
support  them." 

I  will  now  ask  the  Secretary  to  read  Lord  Avebury's  speech 
to  you. 


110 

LORD  AVEBURY,  ON  THE  SITUATION. 

The  Secretary  then  read  Lord  Avebury's  speech  as  follows : 
"The  present  meeting  is  a  somewhat  unexpected  event,,  and 
the  circumstances  under  which  the  necessity  for  it  has  arisen  are 
undoubtedly  disappointing.  I  dp  not  propose  to  occupy  your  time 
with  the  past  history  of  the  Honduras  Debt,  or  of  the  efforts  which 
have  been  made  by  your  Committee  to  oring  about  a  settlement. 
It  is  sufficient  to  go  back  to  the  early  part  of  1909,  when  your 
Committee,  with  the  valuable  co-operation  of  the  British  Minister 
in  Central  America  succeeded  in  arranging  terms  with  the  Govern- 
ment of  Honduras.  Before,  however,  the  proposals  could  be  sub- 
mitted to  the  Bondholders,  the  United  States  Government  inter- 
vened and  substituted  its  own  scheme,  which  contemplated  the  re- 
funding of  the  entire  indebtedness  of  the  Republic.  Negotiations 
then  took  place  with  the  Council  and  Committee,  who  were  able 
to  secure  a  considerable  improvement  in  the  terms  as  originally 
proposed,  and  it  was  agreed  that,  subject  to  the  necessary  arrange- 
ment being  made  between  the  Government  of  the  United  States 
and  Honduras,  Messrs.  Morgan  and  Company  should  purchase  the 
Bonds  of  the  External  Debt  at  the  rate  of  £15  cash  for  each  £100 
nominal  bonds  with  all  overdue  interest.  The  agreement  allowed 
a  period  of  one  year  'for  the  arrangement  to  be  effected,  and  the 
Council  thereupon,  in  accordance  with  Messrs.  J.  P.  Morgan's  re- 
quest, invited  the  Bondholders  to  deposit  their  securities  in  asseni 
to  the  scheme.  A  prompt  and  satisfactory  response  was  given  to 
this  invitation,  the  amount  of  bonds  lodged  with  us  and  on  11\c 
Continent  being  about  £4,000,000,  which  constitutes  a  large  major- 
ity of  the  total  debt  said  to  be  outstanding." 

"The  date  fixed  for  the  arrangement  to  be  conclude*]  nnl  the 
cash  payment  was  the  4th  of  August  next,  but  under  the  conditions 
of  deposit  an  extension  of  time  could  be  granted  if  approved  by 
resolution  of  a  general  meeting  of  the  holders  of  certificates  issued 
in  respect  of  deposited  bonds.  The  question  which  you  have 
to  consider  i-  whether  you  are  prepared  to  grant  an  extrusion." 


Ill 

LETTER  FROM  MESSRS.  MORGAN,  GRENFELL  AND 
COMPANY. 

We  had  confidently  hoped  that  the  £15  cash  would  be  paid 
on  or  before  the  4th  of  August,  but  a  few  days  ago  we  received  a 
letter  from  Messrs.  Morgan,  Grenfell  and  Company  informing  us 
that  their  friends  in  New  York  were  not  prepared  to  make  the1 
payment  on  that  date.  This  letter  is  as  follows: 

22  Old  Broad  Street,  London,  E.  C.,  July  18,  1910. 
James  P.  Cooper,  Esq., 

Secretary,  Council  of  Honduras  External  Debt. 

"Dear  Sir:— Referring  to  the  letter,  of  27th  July,  1909,  from 
our  predecessors,  Messrs.  J.  P.  Morgan  and  Company,  to  yourself 
with  a  view  to  an  arrangement  of. the  External  Debt  of  Honduras, 
we  beg  to  inform  you  that  our  friends  Messrs.  J.  P.  Morgan  and 
Company  advise  us  that  the  arrangement  between  the  United 
States  of  America  and  the  Republic  of  Honduras,  contemplated 
under  the  first  condition  of  deposit,  has  not  been  concluded,  and' 
that  consequently  they  will  not  be  able  to  make  payment  mentioned 
in  the  said  condition  of  deposit  on  the  4th  proximo. 

"We  understand  from  Messrs.  J.  P.  Morgan  and  Company  that 
the  negotiations  are  proceeding  satisfactory  on  the  other  side.  Thtr 
Honduras  Congress  will  meet  in  October,  and  if  approved  thereby, 
the  proposition  for  the  seltloment  of  the  debt  will  be  subject  to- 
ratification  by  the  Congress  of  the  United  States  of  America, 
which  meets  in  December.  Should  either  of  the  Governments  fail 
to  approve  the  project  would  have  to  be  dropped,  but  in  case  the 
matter  should  be  definitely  settled  before  the  end  of  the  current 
year. 

"Under  these  circumstances,  Messrs.  J.  P.  Morgan  and  Com- 
pany are  willing  to  extend  the  present  arrangements  for  a  further 
six  months — say,  till  the  4th  February,  1911,  should  the  Council 
of  Foreign  Bondholders  wish  to  do  so. 

"Messrs.  J.  P.  Morgan  and  Company  inform  us  that  from 
advices  received  they  are  hopeful  of  a  successful  result  from  the 
negotiations. 

"We  shall  be  glad  if  you  will  submit  Messrs.  J.  P.  Morgan  and 


112 

Company's  proposal  to  your  Committee  and  advise  us  of  its  deci- 
sion as  regards  the  extension  of  the  agreement  with  the  Bond- 
holders for  a  further  six  months." 

Yours  faithfully,, 
(Signed)     MORGAN,  GRENFELL  AND  CO. 

"This  letter  contains  the  whole  of  the  information  which 
Messrs.  Morgan  and  Company  have  been  able  to  give  us.  "While 
we  quite  admit  that  it  is  disappointing  that  the  matter  has  not 
been  settled  within  the  time  originally  allowed,  we  think  it  must 
be  granted  that  it  is  impossible  to  prevent  delays  arising  in  deli- 
cate negotiations  of  this  .kind,  and  where  two  Governments  are 
concerned,  and  it  is  only  natural  that  the  United  States  Govern- 
ment should  wish  the  arrangement  to  receive  full  and  formal  ratifi- 
cation by  Congre-ss.  It  does  not  follow  that  the  arrangement  will 
fall  through,  and  it  is,  at  any  rate,  satisfactory  to  note  that  Messrs. 
J.  P.  Morgan  and  Compony  state  that  the  negotiations  are  pro- 
ceeding with  out  any  hitch,  and  that  they  are  hopeful  of  a  suc- 
cessful result.  It  certainly  would  seem  that  as  the  United  St<ifrs 
Government  liave  intervened  and  substituted  their  own  scheme  in 
the  place  of  that  negotiated  by  the  Committee  under  the  auspices 
of  the  British  Minister,  they  are  bound  to  see  the  matter  through, 
and  it  is  difficult  to  bolieve  that  they  would  have  felt  justified  in 
taking  the  action  they  did  unless  they  had  clearly  seen  their  w<uj  fo 
bringing  the  matter  to  a  definite  conclusion." 

THE  QUESTION  OF  COMPENSATION  FOR  THE  DEL  AY. 

"Your  Committee  met  on  the  20th  inst.,  and,  after  earefully 
considering  Messrs.  Morgan,  Grenfell  and  Company's  letter,  eame 
to  the  conclusion  that  they  recommend  YOU  to  irmni  tin*  extension 
of  six  months  propped  l»y  MC--I-.  Morgan,  provided  that  inierest 
at  5  per  cent  per  annum,  running  f'-mn  August  llh,  to  the  date  of 
payment,  i-  added  to  the  U.~).  This  seems  an  eminently  fair  and 
reasonable  proposal,  hut  I  regret  t«>  sav  //////  .1/fx.srx.  Mort/nn  nml 

Company  do  n<>l  '/////'•>//•  j/.v^o.sw/  //*  full  in  irifli  II.    It  is  therefore, 

n-idrr  \vhat  COUTte  you  will  adopt,  whether  you  will 
grant  it  without  any  </ni<f  /»•<>  </n<>:  .,r  whether  \<m  will  irrant  it 
00  condition  i  n  is  <rjv(.n  f,,,-  |he  delay,  and  if 


113 

so,  what,  that  compensation  should  be.  As  an  alternative  to  the 
payment  of  5  per  cent  interest,  another  proposal  has  occured  to  us, 
and  it  is  this:  The  total  of  the  External  Debt  said  to  he  outstand- 
ing is£5,398J570,  but  owing  to  the  long  time  the  debt  has  remained 
in  total  default,  it  is  probable  that  the  whole  of  this  amount  will 
never  be  presented  for  payment.  The  suggestion  is  that  one-half 
of  the  saving  effected  owing  to  a  smaller  amount  of  bonds  claiming 
payment  should  go  to  the  certificate  holders  in  the  form-  of  an  ad- 
dition to  the  very  modest  sum  of  £15,,  which  they  are  offered  under 
the  present  scheme.  It  would  be  quite  possible  when  the  £15  is 
paid  to  give  each  holder  a  certificate  entitling  him  to  receive  his 
share  of  any  such  saving  at  the  proper  time." 

*The  Chairman: 

"By  no  means.  The  fact  of  the  matter  is  that  certain  formali- 
ties are  necessary  before  the  scheme  can  be  considered  as  final. 
It  is  thought  that  during  the  next  six  months  they  will  have  been 
able  to  conclude  the  arrangement,  and  that  it  will  have  been  possible 
to  submit  it  to  the  Honduras  Chambers  and  also  to  the  Senate  of 
"the  United  States,  which  is  necessary  in  the  case  of  any  treaty. 

Mr.  Watson: 

"Do  you  think  they  are  likely  to  accept  the  alternative  sugges- 
tion if  they  will  not  pay  the  5  per  cent  from  the  5th  August  to  the 
time  of  payment?" 

The  Chairman: 

"It  is  difficult  to  say.  There  are  precedents  in  favor  of  their 
making  some  concession,  and  of  course,  the  ordinary  business 
transaction  would  be  that  if  you  cannot  pay  on  a  particular  date, 
you  must  pay  interest  until  the  time  for  actual  payment." 

Mr.  T.  H.  Wells: 

"If  we  do  not  accept  the  delay  what  else  is  there  to  be  done  ?" 

THE  COMMITTEE'S  SUGGESTION. 

"The  Chairman: 

"That  is  for  the  Bondholders  to  decide.  Perhaps  I  might 
venture  now  to  say  what  the  Committee  would  suggest,  which  is 
'that  we  should  grant  the  delay,  but  that  we  should  require  some 
^compensation  in  respect  of  it.  (Hear,  Hear!).  If  you  are  pre- 


114 

pared  to  agree  to  delay,  we  would  suggest  that  you  should  leave- 
it  to  the  Council  and  the  Committee  to  see  what  terms  they  can 
make.  (Hear,  Hear!).  We  do  not  want  to  trouble  you  to  meet 
again  in  the  month  of  August,  which  would  be  very  disagreeable. 
We  hope  that  they  will  make  some  proposal  to  us,  which  perhaps 
you  might  like  to  make  to  the  council  and  committee,  who  have  your 
interests  at  heart,  to  decide  upon.  But  that  is,  of  course,  for  the  bond- 
holders to  say.  I  will  read  you  the  resolution  which  we  drew  up. 
thinking  that  possibly  you  might  like  to  accept  it.  It. is  as  follows : 
That  this  general  meeting1  of  holders  of  deposit  certificates  rcpre- 
$i'ntin(/  llnmhmis  Government  bonds,  hereby  authorizes  the  Council 
of  Foreign  Bondholders  and  the  Committee  of  Honduras  Bo  mi- 
holders  to  grant  an-  extension  of  the  time  fixed  by  the  first  condi- 
tion of  deposit  for  six  months;  namely,  to  4th  February.  1911 — 
provided  that  compensation  for  the  delay  is  granted  in  such  form  or 
manner  as  the  Council  and  Committee  may  approve."  (Hear, 
Hear!).  We  should  not,  of  course,  be  in  a  position  to  make  an 
arrangement  with  Messrs.  Morgan  without  compensation  except  by 
another  meeting  of  the  bondholders  and  hearing  what  their  opinion 
was.  This  will  merely  leave  to  the  Council  and  Committee  the  de- 
tails of  any  arrangement  for  compensation  that  might  be  proposed, 
and  which  they  might  think  acceptable  to  the  bondholders/"7 
Mr.  F.  C.  Home: 

"I  should  like  to  point  out  to  the  Bondholders  that  we  an1 
not  really  receiving  compensation  for  the  extension  of  the  option. 
We  gave  Messrs.  J.  P.  Mrgan  and  Company  an  option  for  no/ linn/ 
running  to  4th  of  August.  \Ylicn  it  expires  they  mail  u*k  for  an 
for  six  months  withonf  (/iring  -a*  compensation  or  niii/ 
j«n/>n'>nt  for  the  r.rlcimon  of  the  o/ifion  :  but  as  the  du." 
date  on  which  payment  should  have  been  made  is  the  1th  of  August 
we  merely  ask  that  it'  they  carry  on  the  business,  they  should  pay 
interest  from  the  4th  of  August,  as  if  they  had  paid  cash,  because 
the  Honduras  Government  should  pay  it,  and  it  is  no  doubt  through 
their  fault,  that  the  delay  has  nceiired.  If  the  business  had  been 
settled  thev  would  have  had  to  pay  inteiv-i  <>n  any  new  hondx 
they  issued  from  the  1th  of  AU.L'IM  :  therefore,  in  asking  for  this 
payment  of  jnlervsi.  we  are  reall\  only  asking  them  to  carry  out 
the  C'ontraet,  jrivin.i:  them  further  time  and  the  further  option 
to  carry  it  out.  and  1  am  surprised  that  Messrs.  Morgan  should 


115 

have  so  far  refused  it.  I  think  that  if  they  meet  the  Honduras- 
Government  and  confer  on  the  subject  they  will  see  that  the- 
amount  is  so  small — it  is  only  about  £12,000 — that  they  will  not 
defer  the  arrangement  on  that  account,  if  they  mean  to  carry  it 
out  at  all. 

"AN  EXCELLENT  PRECEDENT." 

"There  is,  moreover,  an  excellent  precedent  in  this  matter.  1 
was  interested  in  the  Santo  Domingo  Loan,  and  there  we  had  ta 
give  one  or  two  delays.  It  was  in  1905-6,  that  the  United  States 
intervened  in  the  settlement  of  the  debt  of  Santo  Domingo  exactly 
in  the  same  way  as  it  has  done-  in  that  of  Honduras,  setting  on  one 
side  an  existing  arrangement,  which,  strange  to  say,  had  been  made 
under  its  own  auspices  in  1904,  and  under  which  rights  of  English 
holders  of  Santo  Domingo  bonds  were  especially  secured.  Owing 
to  a  delay  of  exactly  the  same  nature  as  had  occurred  in  the  present 
instance,  the  new  arrangement  was  not  carried  into  effect  until 
1908,  but  the  bondholders  received  compensation  by  the  addition 
of  interest  to  the  principal  amount  agreed  to  be  paid.  I  do  not 
see  that  one  can  have  a  better  example.  Although  it  has  not  a 
direct  bearing  on  the  present  case,  I  cannot  help  talcing  this  op- 
portunity of  saying  that  the  English  holders  of  Santo  Domingo 
bonds,  of  which  I  was  one,  were  most  unfairly  treated  under  the 
arrangement  of  1908,  as  compared  with  the  French  and  Belgian 
holders  of  identically  the  same  securities;  and  I  must  express  my 
surprise  and  regret  that  although  hopes  have  been  held  out  that 
we  should  receive  justice,  so  far  nothing  has  been  done.  As  regards 
the  present  arrangement,  I  also  wish  to  point  out  that  Messrs.  Mor- 
gan state  in  the  letter  we  have  heard  read  that  the  negotiation 
between  the  two  Governments  are  still  proceeding,  so  that  there  can 
be  no  difficulty  in  making  alteration  in  the  terms.  They  have  come 
to  practically  no  arrangement  with  the  Honduras  Government,  and 
if  we  hold  out  for  the  extra  interest  I  think  we  shall  probably  get 
it.  If  not,  let  them  accept  the  alternative  scheme,  which  will  cost 
them  nothing.  We  should  simply  be  participating  in  any  bonds 
which  might  be  lost  or  destroyed.  I  think  we  should  certainly 
hold  out  for  something  in  place  of  the  interest  which  we  are  entitled 
to  if  they  will  not  pay  the  interest  itself. 


11C 

Mr.  Watson: 

"I  think  we  cannot  do  better  than  fall  in  with  the  resolution 
drafted.  We  should  certainly  have  some  compensation,  and  I  shall 
have  much  pleasure  in  moving  this  resolution,  as  I  am  satisfied 
it  is  the  right  course  to  adopt." 

Mr.  Wells  seconded  the  resolution  and  it  was  carried  unani- 
mously. 

The  proceeding  them  terminated. 


Morgan's  Options  to  the  Honduras  Bonds  Expired 
February  4th,  1911. 


119 

EXTRACTS'  FROM  THE  THIRTY-SEVENTH  ANNUAL 

REPORT  OF  THE  COUNCIL  OF  THE  CORPORATION 

OF  FOREIGN  BONDHOLDERS. 

FOR  THE  YEAR  1910. 

-General  Remarks  (page  12). 

As  to  Honduras,,  disappointing  as  the  delay  must  be  to  the 
Bondholders,  there  are,  no  doubt,  many  difficulties  in  the  way; 
but,  as  previously  pointed  out  by  the  Council,  the  Government  of 
the  United  States,  having  intervened  in  order  to  substitute  their 
own  scheme  of  settlement  in  the  place  of  that  negotiated  in  1909, 
by  H.  M/s  Minister  in  Central  America,  are  under  the  strongest 
obligation  to  see  the  matter  brought  to  a  successful  conclusion. 

Honduras  (page  16). 

The  period  of  twelve  months,  within  which  the  arrangement 
for  the  settlement  of  the  External  Debt  was  to  be  concluded,  and 
the  agreed  price  of  £15  Cash  per  £100  of  Bonds  paid,  expired  on 
4th  August,  1910;  but  much  to  the  disappointment  of  the  Council, 
a  notification  was  received  from  Messrs.  Morgan  and  Company, 
towards  the  end  of  July,  stating  that  negotiations  between  the 
Governments  of  the  United  States  and  Honduras  had  not  been 
concluded,  and  that  they  were  therefore  unable  to  make  payment  on 
the  date  named.  In  these  circumstances  it  was  suggested  that  an 
extension  of  time  for  six  months  should  be  allowed,  although  it 
was  fully  expected  that  the  matter  would  be  decided  one  way  or 
the  other,  by  the  end  of  the  year,  as  the  arrangement  was  to  be  sub- 
mitted to  the  Congress  of  Honduras  during  the  month  of  October, 
and  to  the  United  States  Senate  in  December.  A  public  meeting 
of  the  holders  of  Certificates  representing  the  deposited  Bonds  was 
held  at  the  Council  House  on  July  26th,  when  it  was  resolved  to 
grant  an  extension  of  time  for  six  months,  viz,  to  4th  February, 
1911,  provided  compensation  was  given  for  the  delay  in  such  form 
and  manner  as  the  Council  and  Committee  might  approve.  This 
resolution  was  communicated  to  Messrs.  Morgan  and  Company, 
who,  in  reply,  stated  that  they  were  not  able  to  pay  the  Bondholders 
anything  more  than  the  £15  per  £100  of  Bonds  as  originally  agreed. 
In  answer  to  this,  the  Council  pointed  out  that  the  conditions  on 
which  the  Bondholders  were  prepared  to  assent  to  the  delay  in  pay- 
ment was  a  reasonable  and  usual  one,  and  that  if  the  arrangement 


120 

had  been  carried  through  in  the  stipulated  time,  the  Government 
of  Honduras  would  presumably  have  had  to  provide  interest  from 
August  4th,  1910,  on  the  entire  new  Loan  to  be  issued  under  the 
Arrangement.  Messrs.  Morgan  thereupon  undertook  to  communi- 
cate the  Council's  views  to  their  friends  in  New  York.  The  long- 
protracted  negotiations  between  the  Governments  of  the  United 
States  and  Honduras  were  then  resumed,  but  the  year  1910  passed, 
away  without  any  definite  results  being  arrived  at,  and  without 
even  the  submission  of  the  proposed  Arrangement  to  either  Con- 
gress. In  reply  to  their  inquiries,  the  council  said,  however,  in- 
formed that  the  negotiations  were  progressing  satisfactorily,  and  in 
his  message  to  the  United  States  Congress,  on  6th  December,  1910, 
President  Taf  t  made  the  following  allusion  to  the  matter : 

"The  Republic  of  Honduras  has  for  many  years  been  burdened 
with  a  heavy  bonded  debt  held  in  Europe,  the  interest,  on  which 
long  ago  fell  into  arrears.  Finally,  conditions  were  such  that  it 
became  imperative  to  refund  the  debt  and  place  the  finances  of 
the  Republic  upon  a  sound  basis.  Last  year  a  group  of  American 
Bankers  undertook  to  do  this,  and  to  advance  funds  for  Railway 
and  other  improvements  contributing  directly  to  the  Country's  pros- 
perity and  commerce — an  arrangement  which  has  long  been  desired : 
by  this  Government.  Negotiations  to  this  end  have  been  under 
way  for  more  than  a  year,  and  it  is  now  confidently  believed  that  a 
short  time  will  suffice  to  conclude  an  arrangement  which  will  be 
satisfactory  to  the  foreign  creditors,  eminently  advantageous  to 
Honduras  and  highly  creditable  to  the  judgment  and  foresight  of 
the  Honduranean  Government.  This  is  much  to  be  desired,  since, 
as  recognized  by  the  Washington  Conventions,  a  strong  Honduras 
would  tend  immensely  to  the  progress  and  prosperity  of  Centra] 
America." 

On  January  10th,  of  the  present  year,  a  Convention  was  signed 
at  Washington  between  the  Representatives  of  the  United  States 
and  Honduras,  and  it  was  fully  experted  that  the  matin-  would  lie 
concluded  before  Hie  expiration  of  the  six  months  extension  of 
time  on  February  4th,  Hondura<  had,  however,  in  the  meantime 
become  involve.]  in  a  fn-<li  revolution.  and  tlie  \vlmlc  of  th< 
ports  on  the  Atlantic  Coast  fell  into  tin-  hands  of  Crnrral  Manuel 


121 

Bonilla,  the  insurgent  leader.  The  Loan  Treaty  appears  to  have 
been  submitted  to  Congress  at  the  end  of  January,  but  owing,  as 
it  is  understood,  to  the  disturbed  state  of  the  Country,  it  failed  to> 
pass. 

On  the  1st  of  February  the  Council  received  a  communication 
from  Messrs.  Morgan  and  Company  stating  that  in  consequence 
of  the  ratifications  not  having  been  exchanged,  they  were  as  yet 
unable  to  carry  out  the  purchase  of  the  Bonds,  but  expected  shortly 
to  approach  the  Bondholders  with  an  offer  like  the  original  one. 

Messrs.  Morgan  and  Company  stated  that  the  negotiations  were 
still  proceeding,  and  as  the  United  States  have  been  invited  to  ar- 
range an  armistice  between  the  opposing  parties,  it  is  hoped  that,, 
peace  being  restored,  the  arrangement  will  before  long  become  am 
accomplished  fact. 


Thirty-Seventh  Annual  Report  of  the  Council  of  the 

Corporation  of  Foreign  Bondholders 

for  the  Year  1910. 


125 

HONDURAS. 

'External  Debt, 

Present  Amount.       Total. 

Five  per  cent.  Loan  of  1867 £78,800* 

Interest    (October,    1872,    to    October, 

1910)    149,720 

£228,520 

Ten  per  cent.  Loan  of  1867 900,700 

Interest  (July,  1872,  to  July,  1910) .  . .     3,422,660 

4,323,360 
Six  and  two-thirds  per  cent.   Loan  of 

1869    • 2,176,570 

Interest    (March,    1873,   to   September, 

1910   5,441,425 

7,617,995. 

Ten  per  cent.  Loan  of  1870. 2,242,500 

Interest  (July,  1872,  to  July,  1910) .  . .     8,521,500 

10,764,000 


Total  '. £22,933,875 


*The  amount  of  the  bonds  in  circulation  is  understood  to  be  £60,- 
•900,  the  balance  of  £17,900  being  in  the  hands  of  the  Honduras  Govern- 
ment. 


126 

HONDURAS  COMMITTEE. 

Eight  Hon.  LOED  AVEBUBY,  Chairman. 

F.  BUBT,  Esq. 

C.  T.  D.  CREWS,  Esq. 

Hon.  SIB  C.  Wl  FBEMANTLE,  K.C.B. 

F.  G.  HOBNE,  Esq. 

ALFBED  JAQUES,  Esq. 

A.  PINTO  LEITE,  Esq. 

GEOBGE  METCALFE,  Esq. 

W.  J.  BEND  ALL  MOOBE,  Esq. 

His  Honor,  Judge  SIB  THOMAS  SNAGGE. 

H.  T.  TATHAM,  Esq. 

JAMES  P.  COOPEB,  Esq.,  Secretary. 

Area  (Estimated),  46,000  square  miles. 

Population  (census  1905),  500,136. 

Capital,  Tegucigalpa.     Population,  34,600. 

President,  General  Miguel  B.  Davila. 

External  debt,  per  head,  including  arrears  of  interest,  £45, 
17s.  Id. 

British  Minister  and  Consul  General  for  Honduras  (resident 
at  Guatemala),  Lionel  Garden,  Esq. 

Agent  of  the  bondholders  at  Porto  Cortes,  W.  J.  Bain,  Esq. 


127 

HISTORY  OF  THE  DEBT  (FOREIGN). 

1827. — Upon  the  breaking  up  of  the  Central  American  Federation 
the  proportion  of  the  6  per  cent.  Federal  Debt  (£163,000) 
alloted  to  Honduras  was  two-twelfths,  or  £27,200.  No 
interest  was  paid  on  this  by  Honduras. 

1867.— Five  per  cent.,  Conversion  Loan.  Amount,  £90,000.  Sink- 
ing fund,  1  per  cent.  Specially  secured  on  the  customs 
dues  of  the  port  of  Amapala.  This  loan  was  issued  for 
the  conversion  of  the  above  debt,  amounting,  with 
arrears  of  interest,  to  £90,075,  and  for  the  liquidation 
of  other  liabilities  in  London,  amounting  to  £30,375. 
.  The  holders  of  the  old  bonds  received  £55,000  new  bonds 
in  satisfaction  of  their  claims.  The  settlement  was 
affected  as  a  preparation  on  the  part  of  the  Government 
for  floating  a  loan  for  the  construction  of  an  Interoceanic 
Railway. 

1867.— Ten  per  cent.  Railway  Loan.  Amount,  £1,000,000.  Issued 
at  80  per  cent,  by  Messrs.  Bischoffsheim  &  Goldschmidt 
for  the  construction  of  an  Interoceanic  Railway.  The 
interest  was  secured  upon  the  railway  and  its  revenues 
and  the  produce  of  the  mahogany  forests.  The  Govern- 
ment undertook  to  provide  an  annuity  of  £140,000  for 
fifteen  years  from  31st  December,  1869,  for  the  service 
of  the  loan,  and  promised  the  subscribers  half  the  profits 
of  the  proposed  railway  for  fifteen  years  after  its  re- 
demption. 

1869. — Six  and  two-thirds  per  cent.  Govt.  Railway  Loan.  Amount, 
£2,490,108.  Issued  in  Paris  by  Messrs.  Dreyfus  &  Co. 
at  75  per  cent.  Redeemable  at  par  in  seventeen  years  by 
half  yearly  drawings.  Security,  first  mortgage  on  State 
railway  and  forests. 

1870.— Ten  per  cent.  Government  Railway  Loan.  Amount,  £2,500,- 
000.  Sinking  fund,  3  per  cent,  by  Messrs.  Bischoffsheim 
&  Goldschmidt,  on  account  of  Mr.  C.  J.  Lefevre,  for  the 
completion  of  the  Interoceanic  Railway.  Security,  the 
railway  and  its  revenues  and  the  produce  of  State 
domains. 

1872-73. — All  four  loans  went  into  default,  the  interest  having  been 
paid  out  of  the  money  borrowed. 


128 

1875. — The  loans  were  the  subject  of  investigation  by  a  Parliamen- 
tary Committee. 

1887-93. — A  concession,  which  included  a  settlement  of  the  Ex- 
ternal Debt,  was  granted  to  Mr.  Binney  for  the  comple- 
tion of  the  Interoceanic  Railway.  The  existing  bonds  of 
the  Foreign  Loans,  with  arrears  of  interest,  were  to  be 
exchanged  for  £100  shares  in  a  new  railway  company  to 
be  formed  in  London.  The  old  bonds  were  to  be  lodged 
in  the  Bank  of  England  pending  the  completion  of  the 
railway,  upon  which  the  Government  was  empowered  to 
cancel  them.  The  company  was  formed  in  1888,  but  the 
Government  declined  to  renew  the  concession  when  it  ex- 
pired in  1892.  A  similar  concession  was  granted  to  an 
American  Company,  which,  however,  contained  no  pro- 
vision for  the  settlement  of  the  debt,  and  was  canceled 
in  1893". 

1896. — A  new  concession  for  the  construction  of  the  Interoceanic 
Railway,  and  embracing  a  settlement  of  the  External 
Debt,  was  granted  to  the  "Honduras  Railway  Company/5 
who  appear  to  have  been  the  successors  of  the  company 
formed  in  1892.  The  terms  proposed  to  be  offered  to 
the  bondholders  were  £15  in  shares  in  exchange  for  each 
£100  of  bonds  with  23  years  arrears  of  interest.  The 
committee  declined  to  submit  such  a  proposal  to  the 
bondholders  .and  the  concession  lapsed. 

1897. — An  American  syndicate,  styled  the  "Honduras  Syndicate," 
who  were  the  successors  of  the  "Honduras  Railway  Com- 
l>;my."  concluded  a  contract  with  the  Government  for 
the  building  of  the  railway,  the  settlement  of  the  foreign 
debt,  and  the  establishment  of  a  bank  charged  with  the 
collection  of  the  customs.  Each  £100  External  IVbt 
liond,  with  arrears  of  interest,  was  to  be  exchanged  for 
I' *.'•")  of  new  iy*  per  cent,  bonds,  redeemable  within  •.)."> 
years,  and  secured  liy  a  guarantee  from  the  hank  and  a 
tirst  charge  upon  the  railway.  The  contract  did  not 
...  specify  the  date  at  which  interest  on  the  new  bonds 
would  hcLfin.  nor  the  len-ili  of  time  allowed  for  the  con- 
ton.  All  new  bonds  not  claimed  within  the  period 
allowed  by  the  Syndicate  were  to  be  divided  between  it. 


129 

and  the  Government.  The  committee  consented  to  nego- 
tiate on  the  basis  proposed,  provided  that  they  were  satis- 
fied with  the  security  offered':  that  the  interest  com- 
menced forthwith,  and  that  -the  conversion  remained 
open  for  a  reasonable  time.  Disputes,  however,  arose 
between  the  Government  and  the  Syndicate,  owing  to  the 
latter  having  failed  to  carry  out  its  contract  as  regards 
both  the  construction  of  the  railway  and  the  settlement 
of  the  External  Debt,  which  led  to  the  revocation  of  the 
concession  in  1900, 
1900. — A  second  contract  with  the  "Honduras  Syndicate"  was 
approved  by  Congress  on  the  26th  of  May,  1900.  This 
arrangement  provided  for  a  lease  of  the  already  con- 
structed portion  of  the  railway  to  the  Syndicate  for  25 
years  at  an  annual  rental  of  $15,000  gold.  Under  pain 
of  forfeiting  the  lease,  the  Syndicate  bound  itself: 
(a)  To  erect  a  bridge  over  the  Ulua,  and  to  reconstruct 
that  over  the  Chamlecon  within  two  years  from  the 
approval  of  the  contract;  (b)  to  reconstruct  the  exist- 
ing line  within  four  years,  and  (c)  to  build  and  open 
to  traffic  the  line  from  Ulua  to  Comayagua  within  five 
years.  It  also  undertook  to  construct  25  kilometres  of 
railway  within  two  years,  and  to  complete  the  line  to 
the  Gulf  of  Fonseca  within  seven  years  from  the  same 
date.  The  Syndicate  also  obtained  a  preferential  right 
to  construct  branch  lines,  and,  for  fifteen  years  from  the 
fulfillment  of  stipulations  (a),  (b)  and  (c),  the  right 
to  construct  a  line  from  the  Northern  Coast  parallel  to 
the  existing  section.  This  contract  contained  no  refer- 
ence to  the  External  Debt. 

1902. — The  Syndicate,  notwithstanding  its  failure  to  carry  out  the 
conditions  of  the  above  contract,  obtained  an  extension 
of  time  of  one  year  from  the  Government — viz.,  to  26ijt 
May,  1903. 

1903. — The  "Honduras  Syndicate"  again  failed  to  execute  the 
works  required  under  its  contract,  and  the  Government 
on  26th  May  took  possession  of  the  railway. 


130 

1 903-0  j. — Dr.  Angel  TTgarte  was  sent  to  Europe  by  the  Govern- 
ment as  Special  Commissioner  in  connection  with  the 
settlement  of  the  debt.  The  proposals  made  by  Dr. 
Ugarte  were  rejected  by  the  committee  as  entirely 
inadmissible. 

1009. — Proposals  for  a  settlement  were  made  by  Messrs.  J.  S. 
Co.  (See  page  16  of  Report  for  1909).* 


CONCLUSION. 


133 

CONCLUSION. 

By  the  documents  herein  published  it  appears  that  from  1867 
to  1870  Honduras  authorized  four  issues  of  bonds  in  Europe  to 
the  amount  of  £6,080,108,  of  which  only  £681,538  have  been 
redeemed,  and  £5,398,570  are  outstanding,  with  arrears  of  interest 
to  the  approximate  sum  of  £17,535,305 : 


-Bonds • •       Arrears  of 


issued      redeemed,  outstanding.  interest. 

1867,  London  .  . .      £90,000       £11,200         £78,800         £149,720 

1867,  London  ...   1,000,000         99,300          900,700  3,422,660 

1869,  Paris   2,490,108       313,538       2,176,570  5,441,425 

1870,  London   .  . .   2,500,000       257,500       2,242,500  8,521,500 


£6,080,108     £681,538     £5,398,570     £17,535,305 

According   to   the    conditions    of   the   prospectus,   these   bonds 
should  have  produced  enough  to  build  the  Interoceanic  railway, 
miles  long,  from  Puerto  Cortes  to  the  Bay  of  Fonseca: 
Second  issue,  £1,000,000  bonds  at  80%—  £800,000 
Third    issue,    £2,490,108  bonds  at  75%-,  1,867,581 
issue,  £2,500,000  bonds  *t  80%--^  2,000,000 


£5,990,108  bonds  £4,867,581 

The  c<m*t  ruction  of  the  railway  was  contracted  with  Messrs, 
Waring  Brothers  &  McCandlish,  of  London,  for  £23230,000 ! 

First  section    53  miles £500,000 

Second  section  85  miles 930,000 

Third  section  92  miles, ,  800,000 


230  miles  £2,230,000 

The  contractors  received  £689,745  and  built  only  53  miles  of 
the  line.  What  disposition  was  made  of  the  proceeds  of  the  loans? 
The  Import  of  the  Select  Committee  of  the  British  Parliament, 
which  investigated  these  loans,  gives  a  full  and  com])] etc  account 
of  the  many  frauds  committed  in  the  issue  and  sale  of  the  bonds, 
and  of  the  misappropriation  of  the  funds.  This  report  is  pub- 
lished in  the  Blue  Book  of  the  British  Parliament  of  1875. 


134 

Notwithstanding  the  circumstances  of  the  many  illegal  trans- 
actions made  in  London  and  Paris  in  the  name  of  Honduras,  we 
always  have  tried  to  settle  this  question  on  an  equitable  basis,  and 
never  have  thought  of  repudiating  the  debt. 

We  owe  what  we  received.  The  amount  has  been  fixed  by 
debtor  and  creditor  to  be  £453,000,  as  per  the  Garden  agreement 
of  March,  1909. 

Xow  that  this  arrangement  has  been  broken  on  account  of 
the  United  States  interposing,  we  have  to  deal  with  the  problem 
as  it  stands  to-day. 

Honduras  needs  the  Interoceanic  Railway  for  her  industrial 
and  commercial  development ;  but  the  Railway  Bonds  are  a  burden 
on  the  line,  which  cannot  be  carried  to  its  completion  unless  they 
are  refunded  or  cancelled. 

How  to  solve  this  problem? 

How  to  settle  the  Railway  debt? 

How  to  build  the  Railway? 

Must  we  have  to  borrow  money? 

How  much  can  we  borrow? 

What  is  our  borrowing  capacity  ? 

What  security  can  we  give? 

These  questions  can  be  answered  as  follows: 

1.  We  need  to  arrange  the  external  debt  in  order  to  free 
the  Railway  from  any  mortgage  and  proceed  with  its  construction. 

2.  To  arrange  the  debt  we  need  no  loan  at  all,  because  Hon- 
duras  is   able   to  pay   annual   installments   proportionate   to   her 
financial    resources,   provided   a   syndicate   undertakes  the  construc- 
tion of  the   railway. 

3.  If  Honduras  would   make  a  loan  to  cancel  af  (tncc  the  old 
Unids.  the  annuity  would  be  more  than  if  she  agrees  to  the  plan 
of  amorti/ation   of  the  old    bonds  proposed    by   the  bondholders   in 
!'.">:;.  cancelling:-   C.'nn.nnn   bonds  cadi   year,  at    an    increasing   rate 
of  in  to  W%   in  the  course  of  ->\   years,  as   follows: 

1    years,  I'-.'nn.nnn    lionds  each  year.... at  in<; 

1   years,  200,000  Bonds  ea< -h   year.... at  1.", 

4  years,  200,000  Bonds  each  year.  .  .  .at  11', 

4  years,  200,000  Bonds  each  year....  at  16% 

4  years,     200,000  Bonds  cadi   year i\  L8$ 

7  years,  200,000  Bonds  ,,,,.1,  year,,,, at  . 


135 


In  this  way  Honduras  would  pay  in  27  installments  £840,000, 
as  follows: 

4  annuities  of  £20,000  each £80,000 

4  annuities  of     24,000  each 96,000 

4  annuities  of     28,000  each... 112,000 

4  annuities  of     32,000  each 128,000 

4  annuities  of     36,000  each 144,000 

7  annuities  of     40,000  each 280,000 


Total £840,000 

4.  By  assuming  the  payment   of  the   debt,   Honduras  may 
grant  a  concession  for  the  construction  of  the  second  and  third 
sections   of  the  Interoceanic   Railway.     Any  American   syndicate 
would  be  willing  to  have  the  first  section  with  the  obligation  of 
building  the  second  and  third  within  a  reasonable  time. 

5.  Instead   of   the    Government   financing   the   Interoceanic 
Railway,  Honduras  would  allow  an  American  syndicate  do  it  as  a 
business   proposition. 

6.  Honduras  has  no  means  to  pay  the  interest  and  sinking 
fund  of  a  big  loan.    She   can   spare   some   money  from  her  actual 
income   for   the   amortization   of  the   old   bonds,   relying  on   the 
probable  increment  of  the  Government  revenues  through  the  in- 
crease of  business  which  the  construction  of  the  Interoceanic  Rail- 
way would  assure. 

7.  Honduras  could  not  give  other  security  for  a  loan  than 
the  Customs  Revenues  and  the  Railway.     But  the  financiers  want 
to  have  the  direct  administration  of  the  customs  houses  and  Rail- 
way under  the  protection  of  their  Government.     Honduras  has 
rejected  this  proposition,  and  is  disposed  to  start  new  negotiations 
for  the  settlement  of  the  debt  and  the  construction  of  the  Railway. 


